10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal year ended February 2, 2008.
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                    to
	Commission file number 1-303

THE KROGER CO.

(Exact name of registrant as specified in its charter)

Ohio	31-0345740
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1014 Vine Street, Cincinnati, OH	45202
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (513) 762-4000

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

Title of each class	Name of each exchange on which registered
Common Stock $1 par value	New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act:

NONE

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  x      No  o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  o       No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x      No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§299.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer (do not check if a smaller reporting company)	o	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes  o       No  x

The aggregate market value of the Common Stock of The Kroger Co. held by non-affiliates as of August 18, 2007:  $18,043 million. 

There were 661,600,170 shares of Common Stock ($1 par value) outstanding as of March 28, 2008.

Documents Incorporated by Reference:

Proxy statement to be filed pursuant to Regulation 14A of the Exchange Act on or before June 2, 2008, incorporated by reference into Part III of Form 10-K.

PART I

ITEM 1.BUSINESS.

The Kroger Co. was founded in 1883 and incorporated in 1902. As of February 2, 2008, the Company was one of the largest retailers in the United States based on annual sales. The Company also manufactures and processes some of the food for sale in its supermarkets. The Company’s principal executive offices are located at 1014 Vine Street, Cincinnati, Ohio 45202, and its telephone number is (513) 762-4000. The Company maintains a web site (www.kroger.com) that includes additional information about the Company. The Company makes available through its web site, free of charge, its annual reports on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K, including amendments thereto. These forms are available as soon as reasonably practicable after the Company has filed or furnished them electronically with the SEC.

The Company’s revenues are earned and cash is generated as consumer products are sold to customers in its stores. The Company earns income predominantly by selling products at price levels that produce revenues in excess of its costs to make these products available to its customers. Such costs include procurement and distribution costs, facility occupancy and operational costs, and overhead expenses.

EMPLOYEES

The Company employs approximately 323,000 full and part-time employees. A majority of the Company’s employees are covered by collective bargaining agreements negotiated with local unions affiliated with one of several different international unions. There are approximately 330 such agreements, usually with terms of three to five years.

During fiscal 2008, the Company has major labor contracts covering its store employees expiring in Columbus, Indianapolis, Las Vegas, Louisville, Nashville, Phoenix and Portland.  Negotiations in 2008 will be challenging as the Company must have competitive cost structures in each market while meeting our associates’ needs for good wages and affordable health care.

STORES

As of February 2, 2008, the Company operated, either directly or through its subsidiaries, 2,486 supermarkets and multi-department stores, 696 of which had fuel centers.  Approximately 43% of these supermarkets were operated in Company-owned facilities, including some Company-owned buildings on leased land.  The Company’s current strategy emphasizes self-development and ownership of store real estate.  The Company’s stores operate under several banners that have strong local ties and brand equity.  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 stores are the primary food store format.  They are typically able to earn a return above the Company’s cost of capital by drawing customers from a 2 – 2½ mile radius.  The Company believes 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.  Many combo stores include a fuel center.

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, electronics, automotive products, toys and fine jewelry.  Many multi-department stores include a fuel center.

Marketplace stores are smaller in size than multi-department stores.  They offer full-service grocery and pharmacy departments as well as an expanded general merchandise area that includes outdoor living products, electronics, home goods and toys.  Many marketplace stores include a fuel center.

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.

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In addition to supermarkets, the Company operates, either directly or through subsidiaries, 782 convenience stores and 394 fine jewelry stores.  Substantially all of our fine jewelry stores are operated in leased locations.  Subsidiaries operated 691of the convenience stores, while 91 were operated through franchise agreements. Approximately 50% of the convenience stores operated by subsidiaries were operated in Company-owned facilities. The convenience stores offer a limited assortment of staple food items and general merchandise and, in most cases, sell gasoline.

SEGMENTS

The Company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores throughout the United States.  The Company’s retail operations, which represent substantially all of the Company’s consolidated sales, earnings and total assets, are its only reportable segment.  All of the Company’s operations are domestic. Revenues, profit and losses, and total assets are shown in the Company’s Consolidated Financial Statements set forth in Item 8 below.

MERCHANDISING AND MANUFACTURING

Corporate brand products play an important role in the Company’s merchandising strategy.  Supermarket divisions typically stock approximately 14,400 private label items.  The Company’s corporate brand products are produced and sold in three quality “tiers.” Private Selection is the premium quality brand designed to be a unique item in a category or to meet or beat the “gourmet” or “upscale” brands.  The “banner brand” (Kroger, Ralphs, King Soopers, etc.), which represents the majority of the Company’s private label items, is designed to be equal to or better than the national brand and carries the “Try It, Like It, or Get the National Brand Free” guarantee. Kroger Value or local banner name is the value brand, designed to deliver good quality at a very affordable price.

Approximately 43% of the corporate brand units sold are produced in the Company’s manufacturing plants; the remaining corporate brand items are produced to the Company’s strict specifications by outside manufacturers. The Company performs a “make or buy” analysis on corporate brand products and decisions are based upon a comparison of market-based transfer prices versus open market purchases. As of February 2, 2008, the Company operated 42 manufacturing plants. These plants consisted of 18 dairies, 11 deli or bakery plants, five grocery product plants, three beverage plants, three meat plants and two cheese plants.

EXECUTIVE OFFICERS OF THE REGISTRANT

The disclosure regarding executive officers is set forth in Item 10 of Part III of this Form 10-K under the heading “Executive Officers of the Company,” and is incorporated herein by reference.

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ITEM 1A.RISK FACTORS.

There are risks and uncertainties that can affect our business.  The significant risk factors are discussed below.  Please also see the “Outlook” section in Item 7 of this Form 10-K for 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, aggressive supercenter expansion, increasing fragmentation of retail formats, entry of non-traditional competitors and market consolidation.  We have developed a strategic plan that we believe is a balanced approach that will enable Kroger to meet the wide-ranging needs and expectations of our customers in this challenging economic environment.  However, the nature and extent to which our competitors implement various pricing and promotional activities in response to increasing competition - including our execution of our strategic plan - and our response to these competitive actions, can adversely affect our profitability.  Our profitability and growth could also be adversely affected by changes in the overall economic environment that impact consumer spending, including discretionary spending.

FOOD SAFETY

Customers count on Kroger to provide them with wholesome food products.  Concerns regarding the safety of food products sold by Kroger could cause shoppers to avoid purchasing certain products from us, or to seek alternative sources of supply for all of their food needs, 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.  As such, any issue regarding the safety of any food items sold by Kroger, regardless of the cause, could have a substantial and adverse effect on our operations.

LABOR RELATIONS

A significant majority of our employees are covered by collective bargaining agreements with unions, and our relationship with those unions, including any work stoppages, could have an adverse impact on our financial results.

We are a party to approximately 330 collective bargaining agreements.  We have major contracts expiring in 2008 covering store employees in Columbus, Indianapolis, Las Vegas, Louisville, Nashville, Phoenix and Portland.  In future negotiations with labor unions, we expect that rising health care, pension and employee benefit costs, among other issues, will continue to be important topics for negotiation. Upon the expiration of our collective bargaining agreements, work stoppages by the affected workers could occur if we are unable to negotiate acceptable contracts with labor unions.  This could significantly disrupt our operations. Further, if we are unable to control health care, pension and wage costs, or gain operational flexibility under our collective bargaining agreements, we may experience increased operating costs and an adverse impact on future results of operations.

STRATEGY EXECUTION

Our strategy focuses on improving our customers’ shopping experience through enhanced service, product selection and value.  Successful execution of this strategy requires a balance between sales growth and earnings growth.  Maintaining this strategy requires the ability to identify and execute plans to generate cost savings and productivity improvements that can be invested in the merchandising and pricing initiatives necessary to support our customer-focused programs, as well as recognizing and implementing organizational changes as required.  If we are unable to execute our plans, or if our plans fail to meet our customers’ expectations, our sales and earnings growth expectations could be adversely affected.

DATA AND TECHNOLOGY

Our business is increasingly dependent on information technology systems that are complex and vital to continuing operations.  If we were to experience difficulties maintaining existing systems or implementing new systems, we could incur significant losses due to disruptions in our operations.  Additionally, these systems contain valuable proprietary data that, if breached, would have an adverse effect on Kroger.

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INDEBTEDNESS

As of year-end 2007, Kroger’s outstanding indebtedness, including capital leases and financing obligations, totaled approximately $8.1 billion.  This indebtedness could reduce our ability to obtain additional financing for working capital, acquisitions or other purposes and could make us more vulnerable to economic downturns and 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

From time to time, we are a party to legal proceedings, including matters involving personnel and employment issues, personal injury, antitrust claims and other proceedings.  Some of these proceedings, including product liability cases, could result in a substantial loss to Kroger in the event that other potentially responsible parties are unable (for financial reasons or otherwise) to satisfy a judgment entered against them.  Others purport to be brought as class actions on behalf of similarly situated parties.  We estimate our exposure to these legal proceedings and establish accruals for the estimated liabilities.  Assessing and predicting the outcome of these matters involves substantial uncertainties.  While we currently do not expect any outstanding legal proceedings to have a material effect on the financial condition of Kroger, unexpected outcomes in these legal proceedings, or changes in our evaluations or predictions about the proceedings, could have a material adverse effect on our financial results.  Please also refer to the “Legal Proceedings” section in Item 3 below.

MULTI-EMPLOYER POST-RETIREMENT OBLIGATIONS

As discussed in more detail below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies-Post-Retirement Benefit Plans,” Kroger contributes to several multi-employer pension plans based on obligations arising under collective bargaining agreements with unions representing employees covered by those agreements.  In addition to future contribution obligations that Kroger may have under those plans, there is a risk that the agencies that rate Kroger’s outstanding debt instruments could view the underfunded nature of these plans unfavorably when determining their ratings on the Company’s debt securities.  Any downgrading of Kroger’s debt ratings likely would increase Kroger’s cost of borrowing.

INSURANCE

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, and employee health care benefits.  Any actuarial projection of losses is subject to a high degree of variability.   Changes in legal 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, and changes in discount rates could all affect ultimate settlements of claims.

ITEM 1B.UNRESOLVED STAFF COMMENTS.

None.

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ITEM 2.PROPERTIES.

As of February 2, 2008, the Company operated more than 3,600 owned or leased supermarkets, convenience stores, fine jewelry stores, distribution warehouses and food processing facilities through divisions, subsidiaries or affiliates. These facilities are located throughout the United States. A majority of the properties used to conduct the Company’s business are leased.

The Company generally owns store equipment, fixtures and leasehold improvements, as well as processing and manufacturing equipment. The total cost of the Company’s owned assets and capitalized leases at February 2, 2008, was $22,436 million while the accumulated depreciation was $9,938 million.

Leased premises generally have base terms ranging from ten-to-twenty years with renewal options for additional periods. Some options provide the right to purchase the property after conclusion of the lease term. Store rentals are normally payable monthly at a stated amount or at a guaranteed minimum amount plus a percentage of sales over a stated dollar volume. Rentals for the distribution, manufacturing and miscellaneous facilities generally are payable monthly at stated amounts. For additional information on lease obligations, see Note 8 to the Consolidated Financial Statements.

ITEM 3.LEGAL PROCEEDINGS.

On October 6, 2006, the Company petitioned the Tax Court (In Re: Ralphs Grocery Company and Subsidiaries, formerly known as Ralphs Supermarkets, Inc., Docket No. 20364-06) for a redetermination of deficiencies set by the Commissioner of Internal Revenue.  The dispute at issue involves a 1992 transaction in which Ralphs Holding Company acquired the stock of Ralphs Grocery Company and made an election under Section 338(h)(10) of the Internal Revenue Code.  The Commissioner has determined that the acquisition of the stock was not a purchase as defined by Section 338(h)(3) of the Internal Revenue Code and that the acquisition does not qualify as a purchase.  The Company believes that it has strong arguments in favor of its position and believes it is more likely than not that its position will be sustained.  However, due to the inherent uncertainty involved in the litigation process, there can be no assurances that the Tax Court will rule in favor of the Company.  As of February 2, 2008, an adverse decision would require a cash payment of approximately $419 million including interest.

On February 2, 2004, the Attorney General for the State of California filed an action in Los Angeles federal court (California, ex rel Lockyer v. Safeway, Inc. dba Vons, a Safeway Company; Albertson’s, Inc. and Ralphs Grocery Company, a division of The Kroger Co., United States District Court Central District of California, Case No. CV04-0687) alleging that the Mutual Strike Assistance Agreement (the “Agreement”) between the Company, Albertson’s, Inc. and Safeway Inc. (collectively, the “Retailers”), which was designed to prevent the union from placing disproportionate pressure on one or more of the Retailers by picketing such Retailer(s) but not the other Retailer(s) during the labor dispute in southern California, violated Section 1 of the Sherman Act. The lawsuit seeks declarative and injunctive relief. On May 25, 2005, the Court denied a motion for a summary judgment filed by the defendants. Ralphs and the other defendants filed a notice of an interlocutory appeal to the United States Court of Appeals for the Ninth Circuit. On November 29, 2005, the appellate court dismissed the appeal. On December 7, 2006, the Court denied a motion for summary judgment filed by the State of California. The Company continues to believe it has strong defenses against this lawsuit and is vigorously defending it. Although this lawsuit is subject to uncertainties inherent to the litigation process, based on the information presently available to the Company, management does not expect that the ultimate resolution of this action will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Various claims and lawsuits arising in the normal course of business, including suits charging violations of certain antitrust, wage and hour, or civil rights laws, are pending against the Company. Some of these suits purport or have been determined to be class actions and/or seek substantial damages. Any damages that may be awarded in antitrust cases will be automatically trebled. Although it is not possible at this time to evaluate the merits of all of these claims and lawsuits, nor their likelihood of success, the Company is of the belief that any resulting liability will not have a material adverse effect on the Company’s financial position.

The Company continually evaluates its exposure to loss contingencies arising from pending or threatened litigation and believes it has made adequate provisions therefor. Nonetheless, assessing and predicting the outcomes of these matters involve substantial uncertainties. It remains possible that despite management’s current belief, material differences in actual outcomes or changes in management’s evaluation or predictions could arise that could have a material adverse impact on the Company’s financial condition or results of operation.

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ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a)

COMMON STOCK PRICE RANGE

	2007				2006
Quarter	High		Low		High		Low
1st	$	30.43	$	24.74	$	20.98	$	18.05
2nd	$	31.94	$	23.95	$	23.23	$	19.37
3rd	$	30.00	$	25.30	$	24.15	$	21.49
4th	$	29.35	$	24.23	$	25.96	$	21.12

Main trading market: New York Stock Exchange (Symbol KR)

Number of shareholders of record at year-end 2007:	46,822
Number of shareholders of record at March 28, 2008:	46,674

During fiscal 2006, the Company’s Board of Directors adopted a dividend policy and paid three quarterly dividends of $0.065 per share.  During fiscal 2007, the Company paid one and three quarterly dividends of $0.065 and $0.075, respectively.  On March 1, 2008, the Company paid its fourth quarterly dividend of $0.075 per share.  On March 13, 2008, the Company announced that its Board of Directors had increased the quarterly dividend to $.09 per share, payable on June 1, 2008, to shareholders of record at the close of business on May 15, 2008.

PERFORMANCE GRAPH

Set forth below is a line graph comparing the five-year cumulative total shareholder return on Kroger’s common stock, based on the market price of the common stock and assuming reinvestment of dividends, with the cumulative total return of companies in the Standard & Poor’s 500 Stock Index and the Peer Group composed of food and drug companies.

Historically, our peer group has consisted of the major food store companies.  In recent years there have been significant changes in the industry, including consolidation and increased competition from supercenters, drug chains, and discount stores.  As a result, in 2003 we changed our peer group (the “Peer Group”) to include companies operating supermarkets, supercenters and warehouse clubs in the United States as well as the major drug chains with which Kroger competes.

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	Base Period	INDEXED RETURNS Years Ending
Company Name/Index	2002	2003	2004	2005	2006	2007
The Kroger Co.	100	122.80	114.25	123.06	172.87	175.61
S&P 500 Index	100	134.57	141.76	158.24	181.97	178.69
Peer Group	100	116.66	124.90	122.44	134.83	139.96

Kroger’s fiscal year ends on the Saturday closest to January 31.

*Total assumes $100 invested on February 2, 2003, in The Kroger Co., S&P 500 Index and the Peer Group, with reinvestment of dividends.

**The Peer Group consists of Albertson’s, Inc., Costco Wholesale Corp., CVS Corp, Delhaize Group SA (ADR), Great Atlantic & Pacific Tea Company, Inc., Koninklijke Ahold NV (ADR), Marsh Supermarkets Inc. (Class A), Safeway, Inc., Supervalu Inc., Target Corp., Wal-Mart Stores Inc., Walgreen Co., Whole Foods Market Inc. and Winn-Dixie Stores, Inc.  Albertson’s, Inc., was substantially acquired by Supervalu in July 2006, and is included through 2005.  Marsh Supermarkets was acquired by Marsh Supermarkets Holding Corp. in September 2006, and is included through 2005.  Winn-Dixie emerged from bankruptcy in 2006 as a new issue and returns for the old and new issue were calculated then weighted to determine the 2006 return.

Data supplied by Standard & Poor’s.

The foregoing Performance Graph will not be deemed incorporated by reference into any other filing, absent an express reference thereto.

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(c)

ISSUER PURCHASES OF EQUITY SECURITIES

Period (1)	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) (in millions)
First period - four weeks
November 11, 2007 to December 8, 2007	2,774,327	$	28.16	2,767,562	$	124
Second period - four weeks
December 9, 2007 to January 5, 2008	3,505,410	$	26.39	3,498,334	$	31
Third period – four weeks
January 6, 2008 to February 2, 2008	3,836,391	$	25.78	3,831,400	$	941
Total	10,116,128	$	26.64	10,097,296	$	941

(1)	The reported periods conform to the Company’s fiscal calendar composed of thirteen 28-day periods.  The fourth quarter of 2007 contained three 28-day periods.
(2)	Shares were repurchased under (i) a $1 billion stock repurchase program, authorized by the Board of Directors on June 26, 2007, (ii) a $1 billion stock repurchase program, authorized by the Board of Directors on January 18, 2008, and (iii) a program announced on December 6, 1999, to repurchase common stock to reduce dilution resulting from our employee stock option plans which program is limited to proceeds received from exercises of stock options and the tax benefits associated therewith. The programs have no expiration date but may be terminated by the Board of Directors at any time. During the fourth quarter of fiscal 2007, the $1 billion stock-repurchase program referred to in clause (ii) replaced the $1 billion stock repurchase program referred to in clause (i). Accordingly, the Company does not intend to make further purchases under the program referenced in clause (i). Total shares purchased include shares that were surrendered to the Company by participants under the Company’s long-term incentive plans to pay for taxes on restricted stock awards.
(3)	The amounts shown in this column in the first and second four-week periods reflect amounts remaining under the $1 billion stock repurchase program referenced in clause (i) of Note 2 above. The amount shown in this column in the third four-week period reflect amounts remaining under the $1 billion stock repurchase program referenced in clause (ii) of Note 2 above. Amounts to be invested under the program utilizing option exercise proceeds are dependent upon option exercise activity.

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ITEM 6.SELECTED FINANCIAL DATA.

	Fiscal Years Ended
	February 2, 2008 (52 weeks)		February 3, 2007 (53 weeks)		January 28, 2006 (52 weeks)		January 29, 2005 (52 weeks)			January 31, 2004 (52 weeks)
	(In millions, except per share amounts)
Sales	$	70,235	$	66,111	$	60,553	$	56,434		$	53,791
Net earnings (loss)	1,181		1,115		958		(104		)	285
Diluted earnings (loss) per share:
Net earnings (loss)	1.69		1.54		1.31		(0.14		)	0.38
Total assets	22,299		21,215		20,482		20,491			20,767
Long-term liabilities, including obligations under capital leases and financing obligations	8,696		8,711		9,377		10,537			10,515
Shareowners’ equity	4,914		4,923		4,390		3,619			4,068
Cash dividends per common share	0.29		0.195		—		—			—

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OUR BUSINESS

The Kroger Co. was founded in 1883 and incorporated in 1902. It is one of the nation’s largest retailers, operating 2,486 supermarket and multi-department stores under two dozen banners including Kroger, Ralphs, Fred Meyer, Food 4 Less, King Soopers, Smith’s, Fry’s, Fry’s Marketplace, Dillons, QFC and City Market.  Of these stores, 696 have fuel centers.  We also operate 782 convenience stores and 394 fine jewelry stores.

Kroger operates 42 manufacturing plants, primarily bakeries and dairies, which supply approximately 43% of the corporate brand units sold in our retail outlets.

Our revenues are earned and cash is generated as consumer products are sold to customers in our stores.  We earn income predominately by selling products at price levels that produce revenues in excess of our 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 operations are reported as a single reportable segment: the retail sale of merchandise to individual customers.

OUR 2007 PERFORMANCE

2007 was a great year for Kroger.  Once again, our actual results compare very favorably to our expectations for the year.

At the outset of fiscal 2007, we expected to grow identical sales, excluding fuel, by 3% to 5%.  We achieved identical sales, excluding fuel, of 5.3% for fiscal year 2007, exceeding the upper end of our original guidance.  We are particularly pleased with such strong identical sales growth in a challenging economic environment, and we believe this demonstrates the resiliency of our business model.

Kroger’s initial guidance for fiscal 2007 earnings was a range of $1.60 to $1.65 per diluted share.  Our 2007 earnings were $1.69 per diluted share, also exceeding the upper end of our original guidance.  This equates to 15% growth after adjusting for the extra week in fiscal 2006.  This growth, plus Kroger’s dividend yield of slightly more than 1%, created strong value for shareholders.

Kroger’s business model is structured to produce sustainable earnings per share growth in a variety of economic and competitive conditions, primarily through strong identical sales growth.  We recognize that continual investment in our customers’ shopping experience is necessary to drive strong, sustainable identical sales growth, and we have the operating cost structure that allows us to afford those pricing and service investments. We believe that Kroger’s dividend program and the sustainable earnings per share growth created by strong identical sales, slight operating margin improvement, and continued share repurchases is a solid approach to increasing shareholder value.

While the objective of our business model is to create shareholder value, the objective of Kroger’s Customer 1st strategy is to serve customers.  Our Customer 1st strategy and business model work in tandem to build our successful business.

Kroger has several advantages that allow us to grow our business in a competitive industry.  Our strong market share and geographic diversity are among the most important.  Kroger serves customers in 44 major markets across 31 different states.  We define a major market as one in which we operate nine or more stores.  Our broad geographical diversity enables us to withstand competitive pressures in multiple markets and to manage unusual economic challenges.  Economic conditions can affect our business, but our Customer 1^st strategy and business model allow us to provide a strong value proposition to customers whose spending may be pinched by economic pressures.

Market share is critical to us because it allows us to leverage the fixed costs in our business over a wider revenue base.  We hold the number one or number two share position in 39 of our 44 major markets.  Our fundamental operating philosophy is to maintain and increase market share.

During fiscal 2007, we grew our market share by roughly 65 basis points in our 44 major markets, based on our internal data and analysis.  This was on top of very strong growth in 2005 and 2006.  During the last three fiscal years combined, Kroger’s share has increased approximately 165 basis points across our major markets.

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RESULTS OF OPERATIONS

The following discussion summarizes our operating results for 2007 compared to 2006 and for 2006 compared to 2005.  Comparability is affected by certain income and expense items that fluctuated significantly between and among the periods.

Net Earnings

Net earnings totaled $1,181 million for 2007, compared to net earnings totaling $1,115 and $958 million in 2006 and 2005, respectively.  The increase in our net earnings for 2007, compared to 2006 and 2005, resulted from spreading fixed costs over our increased identical sales.  In addition, 2006 net earnings, compared to 2005, increased due to a 53^rd week in that year.

Earnings per diluted share totaled $1.69 in 2007, compared to $1.54 and $1.31 per share in 2006 and 2005, respectively.  Earnings per diluted share increased 15% after adjusting for the extra week in fiscal 2006.  Net earnings in 2006 benefited from a 53^rd week by an estimated $0.07 per share.  Our earnings per share growth in 2007, 2006 and 2005 resulted from increased net earnings, strong identical sales growth and the repurchase of Kroger stock.  During fiscal 2007, we repurchased 53 million shares of Kroger stock for a total investment of $1,421 million.  During fiscal 2006, we repurchased 29 million shares of our stock for a total investment of $633 million.  During fiscal 2005, we repurchased 15 million shares of Kroger stock for a total investment of $252 million.

Sales

Total Sales

(in millions)

	2007		Percentage Increase		2006		Percentage Increase		2005
Total food store sales without fuel	$	60,142	4.2	%	$	57,712	7.9	%	$	53,472
Total food store fuel sales	5,741		28.9	%	4,455		26.3	%	3,526
Total food store sales	$	65,883	6.0	%	$	62,167	9.1	%	$	56,998
Other sales(1)	4,352		10.3	%	3,944		10.9	%	3,555
Total Sales	$	70,235	6.2	%	$	66,111	9.2	%	$	60,553

(1)  Other sales primarily relate to sales at convenience stores, including fuel, jewelry stores and sales by our manufacturing plants to outside firms.

The growth in our total sales was primarily the result of identical store sales increases and inflation in many core grocery and perishable categories.  Increased transaction count and average transaction size were both responsible for our increases in identical supermarket sales, excluding retail fuel operations.  After adjusting for the extra week in fiscal 2006, total sales increased 8.2% in 2007 over fiscal 2006.

We define a supermarket as identical when it has been in operation without expansion or relocation for five full quarters.  Differences between total supermarket sales and identical supermarket sales primarily relate to changes in supermarket square footage.  Annualized identical supermarket sales include all sales at the Fred Meyer multi-department stores.  We calculate annualized identical supermarket sales based on a summation of four quarters of identical supermarket sales.  Our identical supermarket sales results are summarized in the table below, based on the 52-week period of 2007, compared to the same 52-week period of the previous year.  The identical store count in the table below represents the total number of identical supermarkets as of February 2, 2008 and February 3, 2007.

Identical Supermarket Sales

(in millions)

	2007			2006
Including supermarket fuel centers	$	62,440		$	58,417
Excluding supermarket fuel centers	$	57,068		$	54,198
Including supermarket fuel centers	6.9		%	6.4		%
Excluding supermarket fuel centers	5.3		%	5.6		%
Identical 4th Quarter store count	2,280			2,288

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We define a supermarket as comparable when it has been in operation for five full quarters, including expansions and relocations.  Annualized comparable supermarket sales include all Fred Meyer multi-departments.  We calculate annualized comparable supermarket sales based on a summation of four quarters of comparable sales.  Our annualized comparable supermarket sales results are summarized in the table below, based on the 52-week period of 2007, compared to the same 52-week period of the previous year.  The comparable store count in the table below represents the total number of comparable supermarkets as of February 2, 2008 and February 3, 2007.

Comparable Supermarket Sales

(in millions)

	2007			2006
Including supermarket fuel centers	$	64,450		$	60,128
Excluding supermarket fuel centers	$	58,838		$	55,773
Including supermarket fuel centers	7.2		%	6.7		%
Excluding supermarket fuel centers	5.5		%	5.7		%
Comparable 4th Quarter store count	2,352			2,362

FIFO Gross Margin

We calculate First-In, First-Out (“FIFO”) Gross Margin as follows: Sales minus merchandise costs plus Last-In, First-Out (“LIFO”) charge (credit).  Merchandise costs include advertising, warehousing and transportation, but exclude depreciation expense and rent expense. FIFO gross margin is an important measure used by our management to evaluate merchandising and operational effectiveness.

Our FIFO gross margin rates were 23.65%, 24.27% and 24.80% in 2007, 2006 and 2005, respectively.  Retail fuel sales lowered our FIFO gross margin rate due to the very low FIFO gross margin on retail fuel sales as compared to non-fuel sales.  Excluding the effect of retail fuel operations, our FIFO gross margin rates decreased 20 basis points, 26 basis points and 4 basis points in 2007, 2006 and 2005, respectively.  The decrease in our non-fuel FIFO gross margin rate reflects our continued reinvestment of operating cost savings into lower prices for our customers.

LIFO Charge

The LIFO charge in 2007, 2006, and 2005 was $154 million, $50 million and $27 million, respectively.  Like many food retailers, we continue to experience product cost inflation at levels that have not occurred for several years.  We estimate that product cost inflation was approximately 3% to 3.5% throughout 2007, as compared to estimated inflation rates that averaged approximately 1% over the previous two years.  This increase in product cost inflation caused the increase in the LIFO charge in 2007.

Operating, General and Administrative Expenses

Operating, general and administrative (“OG&A”) expenses consist primarily of employee-related costs such as wages, health care benefit costs and retirement plan costs.  Among other items, rent expense, depreciation and amortization expense, and interest expense are not included in OG&A.

OG&A expenses, as a percent of sales, were 17.31%, 17.91% and 18.21% in 2007, 2006 and 2005, respectively.  The growth in our retail fuel sales lowers our OG&A rate due to the very low OG&A rate on retail fuel sales as compared to non-fuel sales.  OG&A expenses, as a percent of sales excluding fuel, decreased 33 basis points, 9 basis points and 13 basis points in 2007, 2006 and 2005, respectively.  Excluding the effect of retail fuel operations and expenses recorded for legal reserves, our OG&A rate declined 16 basis points in 2006.  The decrease in our OG&A rate in 2007, excluding the effect of retail fuel operations, was primarily the result of strong identical sales growth, increased productivity, and progress we have made in controlling our utility, health care and pension costs.  These improvements were partially offset by increases in credit card fees.

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Rent Expense

Rent expense was $644 million in 2007, as compared to $649 million and $661 million in 2006 and 2005, respectively.  Rent expense, as a percent of sales, was 0.92% in 2007, as compared to 0.98% in 2006 and 1.09% in 2005.  The decrease in rent expense, as a percent of sales, reflects our increasing sales and our continued emphasis on owning rather than leasing whenever possible.

Depreciation and Amortization Expense

Depreciation expense was $1,356 million, $1,272 million and $1,265 million for 2007, 2006 and 2005, respectively. The increases in depreciation and amortization expense were the result of capital expenditures totaling $2,060 million, $1,777 million and $1,306 million in 2007, 2006 and 2005, respectively.  Depreciation and amortization expense, as a percent of sales, was 1.93%, 1.92% and 2.09% in 2007, 2006 and 2005, respectively.  The increase in our depreciation and amortization expense compared to 2006, as a percent of sales, is due to an annual depreciation charge in both years with 2006 containing 53 weeks of sales due to the structure of our fiscal calendar.  Excluding the effect of retail fuel operations, the decrease in our depreciation and amortization expense compared to 2005, as a percent of sales, is primarily the result of identical store sales increases.

Interest Expense

Net interest expense totaled $474 million, $488 million and $510 million for 2007, 2006 and 2005, respectively.  The decrease in interest expense was the result of replacing borrowings with new borrowings at a lower interest rate.  The average total debt balance in 2007 was comparable to both 2006 and 2005.

Income Taxes

Our effective income tax rate was 35.4%, 36.2% and 37.2% for 2007, 2006 and 2005, respectively.  The effective tax rates for 2007 and 2006 differ from the expected federal statutory rate due to the resolution of certain tax issues and an adjustment of certain deferred tax balances, respectively.  In addition, the effective income tax rates differ from the expected federal statutory rate in all years presented due to the effect of state taxes.

During the third quarter of 2007, we resolved favorably certain tax issues.  This resulted in a 2007 tax benefit of approximately $40 million and reduced our effective rate by 1.9%.

In 2006, during the reconciliation of our deferred tax balances, and after the filing of our annual federal and state tax returns, we identified adjustments to be made in the previous years’ deferred tax reconciliation.  We corrected these deferred tax balances in our Consolidated Financial Statements for the year ended February 3, 2007, which resulted in a reduction of our fiscal 2006 provision for income tax expense of approximately $21 million and reduced the rate by 1.2%.  We do not believe these adjustments are material to our Consolidated Financial Statements for the year ended February 3, 2007, or to any prior years’ Consolidated Financial Statements.  As a result, we have not restated any prior year amounts.

COMMON STOCK REPURCHASE PROGRAM

We maintain stock repurchase programs that comply with Securities Exchange Act Rule 10b5-1 and allow for the orderly repurchase of our common stock, from time to time.  We made open market purchases totaling $1,151 million, $374 million and $239 million under these repurchase programs during fiscal 2007, 2006 and 2005, respectively.  In addition to these repurchase programs, in December 1999 we began a program to repurchase common stock 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 $270 million, $259 million and $13 million under the stock option program during 2007, 2006 and 2005, respectively.

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CAPITAL EXPENDITURES

Capital expenditures, including changes in construction-in-progress payables and excluding acquisitions, totaled $2,060 million in 2007 compared to $1,777 million in 2006 and $1,306 million in 2005.  The increase in capital spending in 2007 compared to 2006 and 2005 was the result of increasing our focus on remodels, merchandising and productivity projects.  The table below shows our supermarket storing activity and our total food store square footage:

Supermarket Storing Activity

	2007		2006		2005
Beginning of year	2,468		2,507		2,532
Opened	23		20		28
Opened (relocation)	9		17		12
Acquired	38		1		1
Acquired (relocation)	1		—		—
Closed (operational)	(43	)	(60	)	(54	)
Closed (relocation)	(10	)	(17	)	(12	)
End of year	2,486		2,468		2,507
Total food store square footage (in millions)	145		142		142

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 generally accepted accounting principles (“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 that 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.

Self-Insurance Costs

We primarily are self-insured for costs related to workers’ compensation and general liability claims.  The liabilities represent our best estimate, using generally accepted actuarial reserving methods, of the ultimate obligations for reported claims plus those incurred but not reported for all claims incurred through February 2, 2008.  We establish case reserves for reported claims using case-basis evaluation of the underlying claim data and we update as information becomes known.

For both workers’ compensation and general liability claims, we have purchased stop-loss coverage to limit our exposure to any significant exposure on a per claim basis.  We are insured for covered costs in excess of these per claim limits.  We account for the liabilities for workers’ compensation claims on a present value basis utilizing a risk-adjusted discount rate.  A 25 basis point decrease in our discount rate would increase our liability by approximately $3 million.  General liability claims are not discounted.

We are also similarly self-insured for property-related losses.  We have purchased stop-loss coverage to limit our exposure to losses in excess of $25 million on a per claim basis, except in the case of an earthquake, for which stop-loss coverage is in excess of $50 million per claim, up to $200 million per claim in California and $300 million outside of California.

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The assumptions underlying the ultimate costs of existing claim losses are subject to a high degree of unpredictability, which can affect the liability recorded for such claims.  For example, variability in inflation rates of health care costs inherent in these claims can affect the amounts realized.  Similarly, changes in legal trends and interpretations, as well as a change in the nature and method of how claims are settled can affect ultimate costs.  Our estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, and any changes could have a considerable effect on future claim costs and currently recorded liabilities.

Impairments of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we monitor the carrying value of long-lived assets for potential impairment each quarter based on whether certain trigger 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 trigger 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 discounted future cash flows to the asset’s current carrying value.  We record impairment when the carrying value exceeds the discounted cash flows.  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 $24 million, $61 million, and $48 million in 2007, 2006 and 2005, respectively.  We record costs to reduce the carrying value of long-lived assets in the Consolidated Statements of Operations as “Operating, general and administrative” expense.

The factors that most significantly affect the impairment calculation are our estimates of future cash flows.  Our cash flow projections look several years into the future and include assumptions on variables such as inflation, the economy and market competition.  Application of alternative assumptions and definitions, such as reviewing long-lived assets for impairment at a different organizational level, could produce significantly different results.

Goodwill

We review goodwill for impairment during the fourth quarter of each year, and also upon the occurrence of trigger events.  We perform reviews at the operating division level.  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 division 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.  If we identify potential for impairment, we measure the fair value of a division against the fair value of its underlying assets and liabilities, excluding goodwill, to estimate an implied fair value of the division’s goodwill.  We recognize goodwill impairment for any excess of the carrying value of the division’s goodwill over the implied fair value.  If actual results differ significantly from anticipated future results for certain reporting units, we would need to recognize an impairment loss for any excess of the carrying value of the division’s goodwill over the implied fair value.  Results of the goodwill impairment reviews performed during 2007, 2006 and 2005 are summarized in Note 2 to the Consolidated Financial Statements.

The annual impairment review requires the extensive use of accounting judgment and financial estimates.  Application of alternative assumptions and definitions, such as reviewing goodwill for impairment at a different organizational level, could produce significantly different results.  Similar to our policy on impairment of long-lived assets, the cash flow projections embedded in our goodwill impairment reviews can be affected by several items such as inflation, the economy and market competition.

Intangible Assets

In addition to goodwill, we have recorded intangible assets totaling $32 million, $24 million and $34 million for leasehold equities, liquor licenses and pharmacy prescription file purchases, respectively, at February 2, 2008.  Balances at February 3, 2007, were $26 million, $22 million and $28 million for lease equities, liquor licenses and pharmacy prescription files, respectively.  We amortize leasehold equities over the remaining life of the lease.  We do not amortize owned liquor licenses, however, we amortize liquor licenses that must be renewed over their useful lives.  We amortize pharmacy prescription file purchases over seven years.  We consider these assets annually during our testing for impairment.

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Store Closing Costs

We provide for closed store liabilities relating to the present value of the estimated remaining noncancellable lease payments after the closing date, net of estimated subtenant income.  We estimate the net lease liabilities using a discount rate to calculate the present value of the remaining net rent payments on closed stores.  We usually pay closed store lease liabilities over the lease terms associated with the closed stores, which generally have remaining terms ranging from one to 20 years.  Adjustments to closed store liabilities primarily relate to changes in subtenant income and actual exit costs differing from original estimates.  We make adjustments for changes in estimates in the period in which the change becomes known.  We review store closing liabilities quarterly to ensure that any accrued amount that is not a sufficient estimate of future costs, or that no longer is needed for its originally intended purpose, is adjusted to earnings in the proper period.

We estimate subtenant income, future cash flows and asset recovery values based on our experience and knowledge of the market in which the closed store is located, our previous efforts to dispose of similar assets and current economic conditions.  The ultimate cost of the disposition of the leases and the related assets is affected by current real estate markets, inflation rates and general economic conditions.

We reduce owned stores held for disposal to their estimated net realizable value.  We account for costs to reduce the carrying values of property, equipment and leasehold improvements in accordance with our policy on impairment of long-lived assets.  We classify inventory write-downs in connection with store closings, if any, in “Merchandise costs.”  We expense costs to transfer inventory and equipment from closed stores as they are incurred.

Post-Retirement Benefit Plans

(a) Company-sponsored Pension Plans

We account for our pension plans using the recognition and disclosure provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 99, 106 and 132(R), which require the recognition of the funded status of retirement plans on the Consolidated Balance Sheet.  We record, as a component of Accumulated Other Comprehensive Income (“AOCI”), actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized.  We currently use a December 31 measurement date.  Effective for 2008, the statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position.  We will adopt the measurement date change in fiscal 2008.

The determination of our obligation and expense for Company-sponsored pension plans and other post-retirement benefits is dependent upon our selection of assumptions used by actuaries in calculating those amounts.  Those assumptions are described in Note 14 to the Consolidated Financial Statements and include, among others, the discount rate, the expected long-term rate of return on plan assets, average life expectancy and the rate of increases in compensation and health care costs.  Actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense and recorded obligation in future periods.  While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions, including the discount rate used and the expected return on plan assets, may materially affect our pension and other post-retirement obligations and our future expense.  Note 14 to the Consolidated Financial Statements discusses the effect of a 1% change in the assumed health care cost trend rate on other post-retirement benefit costs and the related liability.

The objective of our discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled.  In making this determination, we take into account the timing and amount of benefits that would be available under the plans. Our methodology for selecting the discount rate as of year-end 2007 was to match the plan’s cash flows to that of a yield curve that provides the equivalent yields on zero-coupon corporate bonds for each maturity. Benefit cash flows due in a particular year can be “settled” theoretically by “investing” them in the zero-coupon bond that matures in the same year. The discount rate is the single rate that produces the same present value of cash flows. The selection of the 6.50% discount rate as of year-end 2007 represents the equivalent single rate under a broad-market AA yield curve constructed by an outside consultant.  We utilized a discount rate of 5.90% for year-end 2006.  The 60 basis point increase in the discount rate decreased the projected pension benefit obligation as of February 2, 2008, by approximately $184 million.

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To determine the expected return on pension plan assets, we consider current and forecasted plan asset allocations as well as historical and forecasted returns on various asset categories.  For 2007 and 2006, we assumed a pension plan investment return rate of 8.5%.  Our pension plan’s average return was 8.5% for the 10 calendar years ended December 31, 2007, net of all investment management fees and expenses.  Our actual return for the pension plan calendar year ending December 31, 2007, on that same basis, was 9.5%.  We believe the pension return assumption is appropriate because we expect that future returns will achieve the same level of performance as the historical average annual return.  We have been advised that during 2008, the trustees plan to increase the allocation of non-core assets, including high yield debt securities, commodities, hedge funds and real estate from 42% to 52%.  The trustees have also indicated that they plan to increase hedge funds within these sectors from 17% to 22% to augment risk and return.  Collectively, these changes should improve the diversification of pension plan assets.  The trustees have advised us that they expect these changes will have little effect on the total return but will reduce the expected volatility of the return.  See Note 14 to the Consolidated Financial Statements for more information on the asset allocations of pension plan assets.

Sensitivity to changes in the major assumptions used in the calculation of Kroger’s pension plan liabilities for the Qualified Plans is illustrated below (in millions).

	Percentage Point Change		Projected Benefit Obligation Decrease/(Increase)			Expense Decrease/(Increase)
Discount Rate	+/- 1.0	%	$	263/$(320	)	$	27/$(27	)
Expected Return on Assets	+/- 1.0	%	—			$	19/$(19	)

We contributed $52 million and $150 million to our Company-sponsored pension plans in 2007 and 2006, respectively.  Although we are not required to make cash contributions to our Company-sponsored pension plans during fiscal 2008, contributions may be made if required under the Pension Protection Act to avoid any benefit restrictions.  We expect any elective contributions made during 2008 will decrease our required contributions in future years.  Among other things, investment performance of plan assets, the interest rates required to be used to calculate the pension obligations, and future changes in legislation, will determine the amounts of any additional contributions.

Net periodic benefit cost decreased in 2007 compared to 2006 and 2005 due to participants in the Cash Balance formula of the Consolidated Retirement Benefit Plan being moved to a 401(k) retirement savings account plan effective January 1, 2007.  Participants under that formula continue to earn interest on prior contributions but no additional pay credits will be earned.  The 401(k) retirement savings plan provides to eligible employees both matching contributions and automatic contributions from Kroger based on participant contributions, plan compensation, and length of service.  We contributed and expensed $90 million to employee 401(k) retirement savings accounts in 2007.

(b) Multi-Employer Plans

We also contribute to various multi-employer pension plans based on obligations arising from most of our collective bargaining agreements.  These 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, in accordance with GAAP.  We made contributions to these plans, and recognized expense, of $207 million in 2007, $204 million in 2006, and $196 million in 2005.

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Based on the most recent information available to us, we believe that the present value of actuarially accrued liabilities in most or all of these multi-employer plans 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, 2007.  Because Kroger is only one of a number of employers contributing to these plans, we also have attempted to estimate the ratio of Kroger’s contributions to the total of all contributions to these plans in a year as a way of assessing Kroger’s “share” of the underfunding.  As of December 31, 2007, we estimate that Kroger’s share of the underfunding of multi-employer plans to which Kroger contributes was $500 million to $700 million, pre-tax, or $315 million to $440 million, after-tax.  This represents a decrease in the amount of underfunding estimated as of December 31, 2006.  This decrease is attributable to, among other things, the investment returns on assets held in trust for the plans during 2007.  Our estimate is based on the best 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.  Our estimate is imprecise and not necessarily reliable.

We have made and disclosed this estimate not because this underfunding is a direct liability of Kroger.  Rather, we believe the underfunding is likely to have important consequences. In 2007, our contributions to these plans increased approximately 1% over the prior year and have grown at a compound annual rate of approximately 5% since 2004.  We expect our contributions to remain consistent subject to collective bargaining and capital market conditions.  The projected contribution amounts in 2008 and beyond has been favorably affected by significant improvement in the values of assets held in trusts, by the labor agreements negotiated in recent years, and by related trustee actions.  Although underfunding can result in the imposition of excise taxes on contributing employers, increased contributions or benefit reductions can reduce underfunding so that excise taxes are not triggered.  Our estimate contemplates neither increased contributions or reduced benefits.  Finally, underfunding means that, in the event we were to exit certain markets or otherwise cease making contributions to these funds, 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 SFAS No. 87, Employers’ Accounting for Pensions.

The amount of underfunding described above is an estimate and is disclosed for the purpose described.  The amount could decline, and Kroger’s future expense would be favorably affected, if the values of net assets held in the trust significantly increase or if further changes occur through collective bargaining, trustee action or favorable legislation.  On the other hand, Kroger’s share of the underfunding would increase and Kroger’s future expense could be adversely affected if net asset values decline, if employers currently contributing to these funds cease participation or if changes occur through collective bargaining, trustee action or adverse legislation.

Deferred Rent

We recognize rent holidays, including the time period during which we have access to the property for construction of buildings or improvements, as well as construction allowances and escalating rent provisions on a straight-line basis over the term of the lease.  The deferred amount is included in Other Current Liabilities and Other Long-Term Liabilities on the Consolidated Balance Sheets.

Uncertain Tax Positions

Effective February 4, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN No. 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

Various taxing authorities periodically audit our income tax returns.  These audits include questions regarding our tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.  In evaluating the exposures connected with these various tax filing positions, including state and local taxes, we record allowances for probable exposures.  A number of years may elapse before a particular matter, for which we have established an allowance, is audited and fully resolved.  As of February 2, 2008, the Internal Revenue Service has concluded an examination for tax years 2002 through 2004.

The assessment of our uncertain tax positions relies on the judgment of management to estimate the exposures associated with our various filing positions.  Although management believes those estimates and judgments are reasonable, actual results could differ, resulting in gains or losses that may be material to our Consolidated Statements of Operations.

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To the extent that we prevail in matters for which allowances have been established, or are required to pay amounts in excess of these allowances, our effective tax rate in any given financial statement period could be materially affected.  An unfavorable tax settlement could require use of cash and result in an increase in our effective tax rate in the year of resolution.  A favorable tax settlement would be recognized as a reduction in our effective tax rate in the year of resolution.

Share-Based Compensation Expense

We account for share-based compensation expense in accordance with the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment.  Under this method, we recognize compensation expense for all share-based payments granted on or after January 29, 2006, as well as all share-based payments granted prior to, but not yet vested as of, January 29, 2006, in accordance with SFAS No. 123(R).  Under the fair value recognition provisions of SFAS No. 123(R), we recognize share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award.  Prior to January 29, 2006, we applied APB No. 25, and related interpretations, in accounting for our stock option plans and provided the pro-forma disclosures required by SFAS No. 123.  APB No. 25 provided for recognition of compensation expense for employee stock awards based on the intrinsic value of the award on the grant date.

Inventories

Inventories are stated at the lower of cost (principally on a LIFO basis) or market.  In total, approximately 97% and 98% of inventories for 2007 and 2006, respectively, were valued using the LIFO method. Cost for the balance of the inventories was determined using the first-in, first-out (“FIFO”) method.  Replacement cost was higher than the carrying amount by $604 million at February 2, 2008, and by $450 million at February 3, 2007.  We follow the Link-Chain, Dollar-Value LIFO method for purposes of calculating our LIFO charge or credit.

We follow item-cost method of accounting to determine inventory cost before the LIFO adjustment for substantially all store inventories at our supermarket divisions.  This method involves counting each item in inventory, assigning costs to each of these items based on the actual purchase costs (net of vendor allowances and cash discounts) of each item and recording the cost of items sold.  The item-cost method of accounting allows for more accurate reporting of periodic inventory balances and enables management to more precisely manage inventory and purchasing levels when compared to the methodology followed under the retail method of accounting.

We evaluate inventory shortages throughout the year based on actual physical counts in our facilities.  We record allowances for inventory shortages based on the results of recent physical counts to provide for estimated shortages from the last physical count to the financial statement date.

Vendor Allowances

We recognize all vendor allowances as a reduction in merchandise costs when the related product is sold.  In most cases, vendor allowances are applied to the related product by item, and therefore reduce the carrying value of inventory by item.  When it is not practicable to allocate vendor allowances to the product by item, we recognize vendor allowances as a reduction in merchandise costs based on inventory turns and as the product is sold.   We recognized approximately $3.6 billion, $3.3 billion and $3.2 billion of vendor allowances as a reduction in merchandise costs in 2007, 2006 and 2005, respectively.  We recognized more than 85% of all vendor allowances in the item cost with the remainder being based on inventory turns.

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LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Information

Net cash provided by operating activities

We generated $2,581 million of cash from operations in 2007 compared to $2,351 million in 2006 and $2,192 million in 2005.  The increase in cash generated from operating activities was primarily due to strong operating results adjusted for non-cash expenses.  In addition, changes in our operating assets and liabilities also affect the amount of cash provided by our operating activities.  We realized a $163 million, $129 million and $121 million decrease in cash from changes in operating assets and liabilities in 2007, 2006 and 2005, respectively.  The decrease in 2007 is primarily attributable to an increase in forward inventory buying activity.  These amounts are also net of cash contributions to our Company-sponsored pension plans totaling $52 million in 2007, $150 million in 2006 and $300 million in 2005.

The amount of cash paid for income taxes in 2007 was higher than the amounts paid in 2006 and 2005 due to higher net earnings.

Net cash used by investing activities

Cash used by investing activities was $2,218 million in 2007, compared to $1,587 million in 2006 and $1,279 million in 2005.  The amount of cash used by investing activities increased in 2007 compared to 2006 and 2005 due primarily to higher capital spending and payments for two acquisitions.  Capital expenditures, including changes in construction-in-progress payables and excluding acquisitions, were $2,060 million, $1,777 million and $1,306 million in 2007, 2006 and 2005, respectively.  Refer to the Capital Expenditures section for an overview of our supermarket storing activity during the last three years.

Net cash used by financing activities

Financing activities used $310 million of cash in 2007 compared to $785 million in 2006 and $847 million in 2005.  The decrease in the amount of cash used was primarily a result of proceeds received from the issuance of long term-debt, offset by greater stock repurchases and dividends paid.  We repurchased $1,421 million of Kroger stock in 2007 compared to $633 million in 2006 and $252 million in 2005. We paid dividends totaling $202 million in 2007 compared to $140 million in 2006.

Debt Management

Total debt, including both the current and long-term portions of capital leases and financing obligations, increased $1,062 million to $8.1 billion as of year-end 2007 from $7.1 billion as of year-end 2006.  Total debt decreased $173 million to $7.1 billion as of year-end 2006 from $7.2 billion as of year-end 2005.  The increases in 2007, compared to 2006, resulted from the issuance of $600 million of senior notes bearing an interest rate of 6.4%, $750 million of senior notes bearing an interest rate of 6.15% and borrowings under the bank credit facility in 2007, offset by the repayment of $200 million of senior notes bearing an interest rate of 7.65% and $300 million of senior notes bearing an interest rate of 7.80% that came due in 2007.  The decreases in 2006, compared to 2005, were primarily the result of using cash flow from operations to reduce outstanding debt.

Our total debt balances were also affected by our prefunding of employee benefit costs and by the mark-to-market adjustments necessary to record fair value interest rate hedges of our fixed rate debt, pursuant to SFAS No. 133 Accounting for Derivative Investments and Hedging Activities, as amended.  We had prefunded employee benefit costs of $300 million at year-end 2007, 2006 and 2005.  The mark-to-market adjustments increased the carrying value of our debt by $44 million and $18 million as of year-end 2007 and 2006.

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Factors Affecting Liquidity

We currently borrow on a daily basis approximately $250 million under our F2/P2/A3 rated commercial paper (“CP”) program.  These borrowings are backed by our credit facility, and reduce the amount we can borrow under the credit facility.  We have capacity available under our credit facility to backstop all CP amounts outstanding.  If our credit rating declines below its current level of BBB/ Baa2/BBB-, the ability to borrow under our current CP program could be adversely affected for a period of time immediately following the reduction of our credit rating.  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 access to the CP markets currently available to us would be significantly limited for an extended period of time (i.e., in excess of 30 days).  Although our ability to borrow under the credit facility is not affected by our credit rating, the interest cost on borrowings under the credit facility could be affected by a decrease in our credit rating or a decrease in our Applicable Percentage Ratio.

Our credit facility also 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 and ratios are described below:

· Our Applicable Percentage Ratio (the ratio of Consolidated EBITDA to Consolidated Total Interest Expense, as defined in the credit facility) was 8.25 to 1 as of February 2, 2008.  Although our current borrowing rate is determined based on our Applicable Percentage Ratio, under certain circumstances that borrowing rate could be determined by reference to our credit ratings.

· Our Leverage Ratio (the ratio of Net Debt to Consolidated EBITDA, as defined in the credit facility) was 2.19 to 1 as of February 2, 2008.  If this ratio exceeded 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 Consolidated EBITDA plus Consolidated Rental Expense to Consolidated Cash Interest Expense plus Consolidated Rental Expense, as defined in the credit facility) was 3.94 to 1 as of February 2, 2008.  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.

Consolidated EBITDA, as defined in our credit facility, includes an adjustment for unusual gains and losses.  Our credit agreement is more fully described in Note 5 to the Consolidated Financial Statements.  We were in compliance with our financial covenants at year-end 2007.

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The tables below illustrate our significant contractual obligations and other commercial commitments, based on year of maturity or settlement, as of February 2, 2008 (in millions of dollars):

	2008		2009		2010		2011		2012		Thereafter		Total
Contractual Obligations(1) (2)
Long-term debt	$	1,564	$	402	$	555	$	527	$	1,400	$	3,191	$	7,639
Interest on long-term debt (3)	435		392		339		309		272		2,035		3,782
Capital lease obligations	54		53		51		55		46		237		496
Operating lease obligations	774		736		693		630		578		3,459		6,870
Low-income housing obligations	8		—		—		—		—		—		8
Financed lease obligations	13		13		13		13		13		177		242
Self-insurance liability (4)	183		117		73		45		23		29		470
Construction commitments	124		—		—		—		—		—		124
Purchase obligations	361		79		49		30		19		22		560
Total	$	3,516	$	1,792	$	1,773	$	1,609	$	2,351	$	9,150	$	20,191
Other Commercial Commitments
Credit facility	$	570	$	—	$	—	$	—	$	—	$	—	$	570
Standby letters of credit	366		—		—		—		—		—		366
Surety bonds	118		—		—		—		—		—		118
Guarantees	16		—		—		—		—		—		16
Total	$	1,070	$	—	$	—	$	—	$	—	$	—	$	1,070

(1)The contractual obligations table excludes funding of pension and other postretirement benefit obligations, which totaled approximately $76 million in 2007. This table also excludes contributions under various multi-employer pension plans, which totaled $207 million in 2007.

(2)We adopted FIN 48 on February 4, 2007. See Note 4 to our Consolidated Financial Statements for the adoption of FIN 48. 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)Amounts include contractual interest payments using the interest rate as of February 2, 2008 applicable to our variable interest debt instruments, excluding commercial paper borrowings due to the short-term nature of these borrowings, and stated fixed and swapped interest rates for all other debt instruments.

(4)The amounts included in the contractual obligations table for self-insurance liability have been stated on a present value basis.

Our construction commitments include funds owed to third parties for projects currently under construction.  These amounts are reflected in other current liabilities in our Consolidated Balance Sheets.

Our purchase obligations include commitments to be utilized in the normal course of business, such as several contracts to purchase raw materials utilized in our manufacturing plants and several contracts to purchase energy to be used in our stores and manufacturing facilities.  Our obligations also include management fees for facilities operated by third parties.  Any upfront vendor allowances or incentives associated with outstanding purchase commitments are recorded as either current or long-term liabilities in our Consolidated Balance Sheets.

As of February 2, 2008, we maintained a $2.5 billion, five-year revolving credit facility that, unless extended, terminates in 2011.  Outstanding borrowings under the credit agreement and commercial paper borrowings, and some outstanding letters of credit, reduce funds available under the credit agreement. In addition to the credit agreement, we maintained four money market lines totaling $125 million in the aggregate.  The money market lines allow us to borrow from banks at mutually agreed upon rates, usually at rates below the rates offered under the credit agreement.  As of February 2, 2008, we had net outstanding commercial paper and borrowings under our credit agreement totaling $345 and $225 million, respectively, that reduced amounts available under our credit agreement and had no borrowings under the money market lines. The outstanding letters of credit that reduced the funds available under our credit agreement totaled $355 million as of February 2, 2008.

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In addition to the available credit mentioned above, as of February 2, 2008, we had available for issuance $1,250 million of securities under a shelf registration statement filed with the SEC and effective on December 20, 2007.

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 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 Kroger, 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.

Most of our outstanding public debt is jointly and severally, fully and unconditionally guaranteed by The Kroger Co. and some of our subsidiaries.  See Note 17 to the Consolidated Financial Statements for a more detailed discussion of those arrangements.  In addition, we have guaranteed half of the indebtedness of two real estate entities in which we have 50% membership interest.  Our share of the responsibility for this indebtedness, should the entities be unable to meet their obligations, totals approximately $7 million.  Based on the covenants underlying this indebtedness as of February 2, 2008, it is unlikely that we will be responsible for repayment of these obligations.  We have also agreed to guarantee, up to $10 million, the indebtedness of an entity of which we have 25% membership interest.  The guarantee is collateralized by inventory of the entity.  Our share of the responsibility, as of February 2, 2008, should the entity be unable to meet its obligations, totals approximately $9 million and is collateralized by $8 million of inventory located in our stores.

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 pension trust fund 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 Kroger; 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 Kroger’s aggregate indemnification obligation could result in a material liability, we are not aware of any current matter that could result in a material liability.

RECENTLY ADOPTED ACCOUNTING STANDARDS

Effective February 4, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN No. 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The effect of adoption was to increase retained earnings by $4 million and to decrease our accrual for uncertain tax positions by a corresponding amount.  Additionally, we decreased goodwill and accrual for uncertain tax positions by $72 million to reflect the measurement under the rules of FIN No. 48 of an uncertain tax position related to previous business combinations.

As of adoption, the total amount of unrecognized tax benefits for uncertain tax positions, including positions affecting only the timing of tax benefits, was $694 million.  The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $119 million.

To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and classified as a component of income tax expense in our Condensed Consolidated Statements of Operations.  This accounting policy election is a continuation of our historical policy.  As of February 4, 2007, the amount of accrued interest and penalties included on the Condensed Consolidated Balance Sheets was $118 million.

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The IRS concluded a field examination of our 2002 – 2004 U.S. tax returns during the third quarter of 2007.  An examination of our 1999 – 2001 U.S. tax returns was completed in 2005.  We contested two issues at the appellate level of the IRS.  One of the issues was resolved in the third quarter of 2007 and we anticipate that the remaining issue may be resolved within the next 12 months.  In the opinion of management, the ultimate disposition of the item noted above will not have a significant effect on our consolidated financial position, liquidity, or results of operations.  Additionally, we have a case in the U.S. Tax Court.  A decision on this case is not expected within the next 12 months.  In connection with this case, we have extended the statute of limitations on our tax years after 1991.

As a result of settlements with taxing authorities during the third quarter, we reclassified unrecognized tax benefits of $168 million from other long-term liabilities to deferred income taxes and accrued taxes payable.

Effective February 3, 2007, we adopted the recognition and disclosure provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statement No. 87, 99, 106 and 132(R), which requires the recognition of the funded status of its retirement plans on the Consolidated Balance Sheet.  Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized are required to be recorded as a component of Accumulated Other Comprehensive Income (“AOCI”).  We currently use a December 31 measurement date.  Effective for 2008, the statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position.  We will adopt the measurement date change in fiscal 2008.

Effective January 29, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment, using the modified-prospective method.  Under this method, we recognize compensation expense for all share-based awards granted prior to, but not yet vested as of, January 29, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation.  For all share-based awards granted on or after January 29, 2006, we recognize compensation expense based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).

RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurement.  SFAS No. 157 does not require any new fair value measurements.  SFAS No. 157 will become effective for our fiscal year beginning February 3, 2008.  We are evaluating the effect the implementation of SFAS No. 157 will have on our Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115.  SFAS No. 159 permits entities to make an irrevocable election to measure certain financial instruments and other assets and liabilities at fair value on an instrument-by-instrument basis.  Unrealized gains and losses on items for which the fair value option has been elected should be recognized into net earnings at each subsequent reporting date.  SFAS No. 159 will become effective for our fiscal year beginning February 3, 2008.  We are currently evaluating the effect the adoption of SFAS No. 159 will have on our Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51.  SFAS No. 160 will require the consolidation of noncontrolling interests as a component of equity.  SFAS No. 160 will become effective for our fiscal year beginning February 1, 2009.  We are currently evaluating the effect the adoption of SFAS No. 160 will have on our Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS No. 141R), which replaces SFAS No. 141.  SFAS No. 141R further expands the definitions of a business and the fair value measurement and reporting in a business combination.  SFAS No. 141R will become effective for our fiscal year beginning February 1, 2009.  We are currently evaluating the effect the adoption of SFAS No. 141R will have on our Consolidated Financial Statements.

In March 2007, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities.   SFAS No. 161 requires enhanced disclosures on an entity’s derivative and hedging activities.  SFAS No. 161 will become effective for our fiscal year beginning February 1, 2009.  We are currently evaluating the effect the adoption of SFAS No. 161 will have on our Consolidated Financial Statements.

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OUTLOOK

This discussion and analysis contains certain forward-looking statements about Kroger’s future performance. These statements are based on management’s assumptions and beliefs in light of the information currently available. Such statements relate to, among other things: projected change in net earnings; identical sales growth; expected pension plan contributions; our ability to generate operating cash flow; projected capital expenditures; square footage growth; opportunities to reduce costs; cash flow requirements; and our operating plan for the future; and are indicated by words such as “comfortable,” “committed,” “will,” “expect,” “goal,” “should,” “intend,” “target,” “believe,” “anticipate,” and similar words or phrases. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially.

Statements elsewhere in this report and below regarding our expectations, projections, beliefs, intentions or strategies are forward-looking statements within the meaning of Section 21 E of the Securities Exchange Act of 1934. While we believe that the statements are accurate, uncertainties about the general economy, our labor relations, our ability to execute our plans on a timely basis and other uncertainties described below could cause actual results to differ materially.

· We expect earnings per share in the range of $1.83-$1.90 for 2008. This represents earnings per share growth of approximately 8%-12% in 2008.

· We anticipate earnings per share growth rates in the 1^st and 4^th quarters of 2008 will be higher than the annual growth rate, and the 3^rd quarter will be lower than the annual growth rate.

· We expect identical food store sales growth, excluding fuel sales, of 3%-5% in 2008.

· In 2008, we will continue to focus on driving sales growth and balancing investments in gross margin and improved customer service with operating cost reductions to provide a better shopping experience for our customers.  We expect non-fuel operating margins to improve slightly in 2008.

· In 2008, we expect the LIFO charge to be consistent with 2007.

· We plan to use free cash flow to repurchase stock and pay cash dividends.

· We expect to obtain sales growth from new square footage, as well as from increased productivity from existing locations.

· Capital expenditures reflect our strategy of growth through expansion, as well as focusing on productivity increase from our existing store base through remodels.  In addition, we will continue our emphasis on self-development and ownership of real estate, logistics and technology improvements.  The continued capital spending in technology is focused on improving store operations, logistics, manufacturing procurement, category management, merchandising and buying practices, and should reduce merchandising costs.  We intend to continue using cash flow from operations to finance capital expenditure requirements.  We expect capital investment for 2008 to be in the range of $2.0-$2.2 billion, excluding acquisitions.  Total food store square footage is expected to grow approximately 2.0%-2.5% before acquisitions and operational closings.

· Based on current operating trends, we believe that cash flow from operations and other sources of liquidity, including borrowings under our commercial paper program and bank credit facility, will be adequate to meet anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments for the foreseeable future. We also believe we have adequate coverage of our debt covenants to continue to respond effectively to competitive conditions.

· We expect that our OG&A results will be affected by increased costs, such as higher energy costs, pension costs and credit card fees, as well as any potential future labor disputes, offset by improved productivity from process changes, cost savings negotiated in recently completed labor agreements and leverage gained through sales increases.

· We expect that our effective tax rate for 2008 will be approximately 38%.

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· We expect rent expense, as a percent of total sales and excluding closed-store activity, will decrease due to the emphasis our current strategy places on ownership of real estate.

· We believe that in 2008 there will be opportunities to reduce our operating costs in such areas as administration, productivity improvements, shrink, warehousing and transportation. These savings will be invested in our core business to drive profitable sales growth and offer improved value and shopping experiences for our customers.

· Although we are not required to make cash contributions to our Company-sponsored pension plans during fiscal 2008, contributions may be made if our cash flows from operations exceed our expectations or if required under the Pension Protection Act to limit any benefit restrictions.  We expect any elective contributions made during 2008 will decrease our required contributions in future years.  Among other things, investment performance of plan assets, the interest rates required to be used to calculate the pension obligations, and future changes in legislation, will determine the amounts of any additional contributions. In addition, we expect to contribute and expense $100 million in 2008 to the 401(k) Retirement Savings Account Plan.

· We expect our contributions to multi-employer pension plans to remain consistent in 2008 subject to collective bargaining and capital market conditions. In 2007, we contributed $207 million to multi-employer pension plans.

· In 2007, we recognized $6 million of expense from the credit extended to customers through our company branded credit cards. This credit portfolio has an above average credit score. We do not anticipate a material change to this expense in 2008.

· If actual results differ significantly from anticipated future results for certain reporting units, an impairment loss for any excess of the carrying value of the division’s goodwill over the implied fair value would need to be recognized.

Various uncertainties and other factors could cause us to fail to achieve our goals. These include:

· We have various labor agreements expiring in 2008, covering associates in Columbus, Indianapolis, Las Vegas, Louisville, Nashville, Phoenix and Portland.  In all of these store contracts, rising health care and pension costs will continue to be an important issue in negotiations. A prolonged work stoppage affecting a substantial number of locations could have a material effect on our results.

· Our ability to achieve sales and earnings goals may be affected by: labor disputes; industry consolidation; pricing and promotional activities of existing and new competitors, including non-traditional competitors; our response to these actions; the state of the economy, including the inflationary and deflationary trends in certain commodities; trends in consumer spending; stock repurchases; and the success of our future growth plans.

· In addition to the factors identified above, our identical store sales growth could be affected by increases in Kroger private label sales, the effect of our “sister stores” (new stores opened in close proximity to an existing store) and reductions in retail pricing.

· Our operating margins, without fuel, could fail to improve as expected if we are unsuccessful at containing our operating costs.

· We have estimated our exposure to the claims and litigation arising in the normal course of business, as well as in material litigation facing Kroger, and believe we have made adequate provisions for them where it is reasonably possible to estimate and where we believe an adverse outcome is probable. Unexpected outcomes in these matters, however, could result in an adverse effect on our earnings.

· Consolidation in the food industry is likely to continue and the effects on our business, either favorable or unfavorable, cannot be foreseen.

· Rent expense, which includes subtenant rental income, could be adversely affected by the state of the economy, increased store closure activity and future consolidation.

· Depreciation expense, which includes the amortization of assets recorded under capital leases, is computed principally using the straight-line method over the estimated useful lives of individual assets, or the remaining terms of leases. Use of the straight-line method of depreciation creates a risk that future asset write-offs or potential impairment charges related to store closings would be larger than if an accelerated method of depreciation was followed.

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· Our effective tax rate may differ from the expected rate due to changes in laws, the status of pending items with various taxing authorities and the deductibility of certain expenses.

· The actual amount of automatic and matching cash contributions to our 401(k) Retirement Savings Account Plan will depend on the savings rate, plan compensation, and length of service of participants.

· We believe the multi-employer pension funds to which we contribute are substantially underfunded. Should asset values in these funds deteriorate, or if employers withdraw from these funds without providing for their share of the liability, or should our estimates prove to be understated, our contributions could increase more rapidly than we have anticipated.

· The grocery retail industry continues to experience fierce competition from other traditional food retailers, supercenters, mass merchandisers, club or warehouse stores, drug stores and restaurants. Our continued success is dependent upon our ability to compete in this industry and to reduce operating expenses, including managing health care and pension costs contained in our collective bargaining agreements. The competitive environment may cause us to reduce our prices in order to gain or maintain share of sales, thus reducing margins. While we believe our opportunities for sustained profitable growth are considerable, unanticipated actions of competitors could adversely affect our sales.

· Changes in laws or regulations, including changes in accounting standards, taxation requirements and environmental laws may have a material effect on our financial statements.

· Changes in the general business and economic conditions in our operating regions, including the rate of inflation, population growth and employment and job growth in the markets in which we operate, may affect our ability to hire and train qualified employees to operate our stores. This would negatively affect earnings and sales growth. General economic changes may also affect the shopping habits of our customers, which could affect sales and earnings.

· Changes in our product mix may negatively affect certain financial indicators. For example, we continue to add supermarket fuel centers to our store base. Since gasoline generates low profit margins, we expect to see our FIFO gross profit margins decline as gasoline sales increase. Although this negatively affects our FIFO gross margin, gasoline sales provide a positive effect on OG&A expenses as a percent of sales.

· Our ability to integrate any companies we acquire or have acquired, and achieve operating improvements at those companies, will affect our operations.

· Our capital expenditures, expected square footage growth, and number of store projects completed during the year could differ from our estimate if we are unsuccessful in acquiring suitable sites for new stores, if development costs vary from those budgeted or if our logistics and technology projects are not completed in the time frame expected or on budget.

· Interest expense could be adversely affected by the interest rate environment, changes in the Company’s credit ratings, fluctuations in the amount of outstanding debt, decisions to incur prepayment penalties on the early redemption of debt and any factor that adversely affects our operations and results in an increase in debt.

· Adverse weather conditions could increase the cost our suppliers charge for their products, or may decrease the customer demand for certain products. Increases in demand for certain commodities could also increase the cost our suppliers charge for their products. Additionally, increases in the cost of inputs, such as utility costs or raw material costs, could negatively affect financial ratios and earnings.

· Although we presently operate only in the United States, civil unrest in foreign countries in which our suppliers do business may affect the prices we are charged for imported goods. If we are unable to pass on these increases to our customers, our FIFO gross margin and net earnings will suffer.

Other factors and assumptions not identified above could also cause actual results to differ materially from those set forth in the forward-looking information. Accordingly, actual events and results may vary significantly from those included in, contemplated or implied by forward-looking statements made by us or our representatives.

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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Financial Risk Management

We use derivative financial instruments primarily to manage our exposure to fluctuations in interest rates and, to a lesser extent, adverse fluctuations in commodity prices and other market risks.  We do not enter into derivative financial instruments for trading purposes.  As a matter of policy, all of our derivative positions are intended to reduce risk by hedging an underlying economic exposure.  Because of the high correlation between the hedging instrument and the underlying exposure, fluctuations in the value of the instruments generally are offset by reciprocal changes in the value of the underlying exposure.  The interest rate derivatives we use are straightforward instruments with liquid markets.

We manage our exposure to interest rates and changes in the fair value of our debt instruments primarily through the strategic use of 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 of debt subject to interest rate reset and the amount of floating rate debt to a combined total of $2.5 billion or less, (iii) include no leveraged products, and (iv) hedge without regard to profit motive or sensitivity to current mark-to-market status.

As of February 2, 2008, we maintained six interest rate swap agreements, with notional amounts totaling approximately $1,050 million, to manage our exposure to changes in the fair value of our fixed rate debt resulting from interest rate movements by effectively converting a portion of our debt from fixed to variable rates.  These agreements mature at varying times between March 2008 and January 2015.  The differential between fixed and variable rates to be paid or received is accrued as interest rates change in accordance with the agreements as an adjustment to interest expense.  These interest rate swap agreements are being accounted for as fair value hedges.  As of February 2, 2008, other long-term assets totaling $11 million were recorded to reflect the fair value of these agreements, offset by increases in the fair value of the underlying debt.

In addition to the interest rate swaps noted above, in 2005 the Company entered into three forward-starting interest rate swap agreements with a notional amount totaling $750 million.  In 2007, the Company terminated two of these forward-starting interest rate swaps in a notional amount of $500 million.  A forward-starting interest rate swap is an agreement that effectively hedges future benchmark interest rates on debt for an established period of time.  The Company entered into the forward-starting interest rate swaps in order to lock into fixed interest rates on forecasted issuances of debt in 2007 and 2008.  The unamortized payment and proceeds on the two terminated forward-starting interest rate swaps have been recorded net of tax in other comprehensive income and will be amortized to earnings as the payments of interest to which the hedges relate are made.  The one remaining forward-starting interest rate swap as of February 2, 2008 has a ten-year term with a fixed interest rate of 5.11%.  As of February 2, 2008, other long-term liabilities totaling $18 million were recorded to reflect the fair value of this agreement.

During 2003, we terminated six interest rate swap agreements that we accounted for as fair value hedges.  We recorded approximately $114 million of proceeds received as a result of these terminations as adjustments to the carrying values of the underlying debt and they are being amortized over the remaining lives of the debt.  As of February 2, 2008, the unamortized balances totaled approximately $33 million.

Annually, we review with the Financial Policy Committee of our Board of Directors compliance with the guidelines.  The guidelines may change as our business needs dictate.

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The tables below provide information about our interest rate derivatives and underlying debt portfolio as of February 2, 2008.  The amounts shown for each year represent the contractual maturities of long-term debt, excluding capital leases, and the average outstanding notional amounts of interest rate derivatives as of February 2, 2008.  Interest rates reflect the weighted average rate for the outstanding instruments.  The variable component of each interest rate derivative and the variable rate debt is based on U.S. dollar LIBOR using the forward yield curve as of February 2, 2008.  The Fair-Value column includes the fair-value of our debt instruments and interest rate derivatives as of February 2, 2008.  Refer to Notes 5, 6 and 7 to our Consolidated Financial Statements:

	Expected Year of Maturity
																						Fair
	2008			2009			2010			2011			2012			Thereafter			Total			Value
	(In millions)
Debt
Fixed rate	$	(994	)	$	(386	)	$	(547	)	$	(489	)	$	(1,360	)	$	(3,169	)	$	(6,945	)	$	(7,279	)
Average interest rate	6.81		%	6.81		%	6.68		%	6.54		%	6.59		%	6.69		%
Variable rate	$	(570	)	$	(15	)	$	(7	)	$	(38	)	$	(41	)	$	(23	)	$	(694	)	$	(694	)
Average interest rate	3.73		%	3.50		%	4.24		%	4.88		%	5.40		%	5.78		%

																			February 2,		February 2,
	Average Notional Amounts Outstanding																		2008		2008 Fair
	2008			2009			2010			2011			2012			Thereafter			Total		Value
										(In millions)
Interest Rate Derivatives
Fixed to variable	$	363		$	300		$	300		$	300		$	300		$	300		$	1,050	$	11
Average pay rate	3.59		%	3.57		%	4.15		%	4.59		%	4.98		%	5.19		%
Average receive rate	5.38		%	4.95		%	4.95		%	4.95		%	4.95		%	4.95		%

We expect the average pay rate for 2008 to decline from the table above by 40 to 50 basis points due to the recent Federal Reserve interest rate cuts in March 2008.

Commodity Price Protection

We enter into purchase commitments for various resources, including raw materials utilized in our manufacturing facilities and energy to be used in our stores, warehouses, manufacturing facilities and administrative offices. We enter into commitments expecting to take delivery of and to utilize those resources in the conduct of normal business. Those commitments for which we expect to utilize or take delivery in a reasonable amount of time in the normal course of business qualify as normal purchases.

Some of the product we purchase is shipped in corrugated cardboard packaging.  We sell corrugated cardboard when it is economical to do so. As of February 2, 2008, we maintained three derivative instruments to manage exposure to changes in corrugated cardboard prices.  These derivatives contain a three-year term.  The instruments do not qualify for hedge accounting, in accordance with SFAS No. 133, Accounting for Derivative Investments and Hedging Activities, as amended.  Accordingly, changes in the fair value of these instruments are marked-to-market in our Consolidated Statements of Operations in OG&A expenses.  As of February 2, 2008, an accrued liability totaling $1 million had been recorded to reflect the fair value of these instruments.

29

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm

To the Shareowners and Board of Directors of

The Kroger Co.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, cash flows and changes in shareowners’ equity present fairly, in all material respects, the financial position of The Kroger Co. and its subsidiaries at February 2, 2008 and February 3, 2007, and the results of their operations and their cash flows for each of the three years in the period ended February 2, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 15 to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, as of February 4, 2007, the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, as of February 3, 2007 and the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, as of January 29, 2006.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Cincinnati, Ohio

April 1, 2008

30

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

	February 2,			February 3,
(In millions)	2008			2007
ASSETS
Current assets
Cash and temporary cash investments	$	242		$	189
Deposits in-transit	676			614
Receivables	786			778
FIFO Inventory	5,459			5,059
LIFO credit	(604		)	(450		)
Prefunded employee benefits	300			300
Prepaid and other current assets	255			265
Total current assets	7,114			6,755
Property, plant and equipment, net	12,498			11,779
Goodwill	2,144			2,192
Other assets	543			489
Total Assets	$	22,299		$	21,215
LIABILITIES
Current liabilities
Current portion of long-term debt including obligations under capital leases and financing obligations	$	1,592		$	906
Accounts payable	4,050			3,804
Accrued salaries and wages	815			796
Deferred income taxes	239			268
Other current liabilities	1,993			1,807
Total current liabilities	8,689			7,581
Long-term debt including obligations under capital leases and financing obligations
Face value long-term debt including obligations under capital leases and financing obligations	6,485			6,136
Adjustment to reflect fair value interest rate hedges	44			18
Long-term debt including obligations under capital leases and financing obligations	6,529			6,154
Deferred income taxes	367			722
Other long-term liabilities	1,800			1,835
Total Liabilities	17,385			16,292
Commitments and Contingencies (See Note 11)
SHAREOWNERS’ EQUITY
Preferred stock, $100 par, 5 shares authorized and unissued	—			—
Common stock, $1 par, 1,000 shares authorized: 947 shares issued in 2007 and 937 shares issued in 2006	947			937
Additional paid-in capital	3,031			2,755
Accumulated other comprehensive loss	(122		)	(259		)
Accumulated earnings	6,480			5,501
Common stock in treasury, at cost, 284 shares in 2007 and 232 shares in 2006	(5,422		)	(4,011		)
Total Shareowners’ Equity	4,914			4,923
Total Liabilities and Shareowners’ Equity	$	22,299		$	21,215

The accompanying notes are an integral part of the consolidated financial statements.

31

THE KROGER CO.

 CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended February 2, 2008, February 3, 2007, and January 28, 2006

(In millions, except per share amounts)	2007 (52 weeks)		2006 (53 weeks)		2005 (52 weeks)
Sales	$	70,235	$	66,111	$	60,553
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below	53,779		50,115		45,565
Operating, general and administrative	12,155		11,839		11,027
Rent	644		649		661
Depreciation and amortization	1,356		1,272		1,265
Operating Profit	2,301		2,236		2,035
Interest expense	474		488		510
Earnings before income tax expense	1,827		1,748		1,525
Income tax expense	646		633		567
Net earnings	$	1,181	$	1,115	$	958
Net earnings per basic common share	$	1.71	$	1.56	$	1.32
Average number of common shares used in basic calculation	690		715		724
Net earnings per diluted common share	$	1.69	$	1.54	$	1.31
Average number of common shares used in diluted calculation	698		723		731

The accompanying notes are an integral part of the consolidated financial statements.

32

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended February 2, 2008, February 3, 2007 and January 28, 2006

(In millions)	2007 (52 weeks)			2006 (53 weeks)			2005 (52 weeks)
Cash Flows From Operating Activities:
Net earnings	$	1,181		$	1,115		$	958
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	1,356			1,272			1,265
LIFO charge	154			50			27
Stock-based employee compensation	87			72			7
Expense for Company-sponsored pension plans	67			161			138
Deferred income taxes	(86		)	(60		)	(63		)
Other	37			20			39
Changes in operating assets and liabilities net of effects from acquisitions of businesses:
Store deposits in-transit	(62		)	(125		)	18
Inventories	(383		)	(173		)	(157		)
Receivables	(17		)	(90		)	(19		)
Prepaid expenses	3			(43		)	31
Accounts payable	185			256			(80		)
Accrued expenses	156			98			155
Income taxes receivable (payable)	43			(4		)	200
Contribution to Company-sponsored pension plans	(52		)	(150		)	(300		)
Other	(88		)	(48		)	(27		)
Net cash provided by operating activities	2,581			2,351			2,192
Cash Flows From Investing Activities:
Payments for capital expenditures	(2,126		)	(1,683		)	(1,306		)
Proceeds from sale of assets	49			143			69
Payments for acquisitions	(90		)	—			—
Other	(51		)	(47		)	(42		)
Net cash used by investing activities	(2,218		)	(1,587		)	(1,279		)
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt	1,372			10			14
Proceeds from lease-financing transactions	8			15			76
Payments on long-term debt	(560		)	(556		)	(103		)
Borrowings (payments) on bank revolver	218			352			(694		)
Excess tax benefits on stock-based awards	36			38			—
Proceeds from issuance of capital stock	188			168			78
Treasury stock purchases	(1,421		)	(633		)	(252		)
Dividends paid	(202		)	(140		)	—
Increase in book overdrafts	61			1			35
Other	(10		)	(40		)	(1		)
Net cash used by financing activities	(310		)	(785		)	(847		)
Net increase (decrease) in cash and temporary cash investments	53			(21		)	66
Cash and temporary cash investments:
Beginning of year	189			210			144
End of year	$	242		$	189		$	210
Reconciliation of capital expenditures:
Payments for capital expenditures	$	(2,126	)	$	(1,683	)	$	(1,306	)
Changes in construction-in-progress payables	66			(94		)	—
Total capital expenditures	$	(2,060	)	$	(1,777	)	$	(1,306	)
Disclosure of cash flow information:
Cash paid during the year for interest	$	477		$	514		$	511
Cash paid during the year for income taxes	$	640		$	615		$	431

The accompanying notes are an integral part of the consolidated financial statements.

33

THE KROGER CO.

 CONSOLIDATED STATEMENT OF CHANGES IN SHAREOWNERS’ EQUITY

Years Ended February 2, 2008, February 3, 2007 and January 28, 2006

	Common Stock			Additional Paid-In			Treasury Stock					AccumulatedOther Comprehensive			Accumulated
(In millions)	Shares	Amount		Capital			Shares		Amount			Gain (Loss)			Earnings			Total
Balances at January 29, 2005	918	$	918	$	2,432		190		$	(3,149	)	$	(202	)	$	3,620		$	3,619
Issuance of common stock:
Stock options and warrants exercised	8	8		57			—		—			—			—			65
Restricted stock issued	1	1		13			—		—			—			—			14
Treasury stock activity:
Treasury stock purchases, at cost	—	—		—			14		(239		)	—			—			(239		)
Stock options and restricted stock exchanged	—	—		—			—		(15		)	—			—			(15		)
Tax benefits from exercise of stock options and warrants	—	—		34			—		—			—			—			34
Other comprehensive loss, net of income tax of $26	—	—		—			—		—			(41		)	—			(41		)
Other	—	—		—			—		—			—			(5		)	(5		)
Net earnings	—	—		—			—		—			—			958			958
Balances at January 28, 2006	927	927		2,536			204		(3,403		)	(243		)	4,573			4,390
Issuance of common stock:
Stock options and warrants exercised	9	9		95			(1	)	30			—			—			134
Restricted stock issued	1	1		13			—		(5		)	—			—			9
Treasury stock activity:
Treasury stock purchases, at cost	—	—		—			18		(374		)	—			—			(374		)
Stock options and restricted stock exchanged	—	—		—			11		(259		)	—			—			(259		)
Tax benefits from exercise of stock options and warrants	—	—		39			—		—			—			—			39
Share-based employee compensation	—	—		72			—		—			—			—			72
Other comprehensive gain net of income tax of $(63)	—	—		—			—		—			102			—			102
SFAS No. 158 adjustment net of income tax of $71	—	—		—			—		—			(120		)	—			(120		)
Other	—	—		—			—		—			2			—			2
Cash dividends declared ($0.26 per common share)	—	—		—			—		—			—			(187		)	(187		)
Net earnings	—	—		—			—		—			—			1,115			1,115
Balances at February 3, 2007	937	937		2,755			232		(4,011		)	(259		)	5,501			4,923
Issuance of common stock:
Stock options and warrants exercised	10	10		175			—		3			—			—			188
Restricted stock issued	—	—		(25		)	(1	)	11			—			—			(14		)
Treasury stock activity:
Treasury stock purchases, at cost	—	—		—			43		(1,151		)	—			—			(1,151		)
Stock options and restricted stock exchanged	—	—		—			10		(270		)	—			—			(270		)
Tax benefits from exercise of stock options	—	—		35			—		—			—			—			35
Share-based employee compensation	—	—		87			—		—			—			—			87
Other comprehensive gain net of income tax of $(82)	—	—		—			—		—			137			—			137
Other	—	—		4			—		(4		)	—			4			4
Cash dividends declared ($0.30 per common share)	—	—		—			—		—			—			(206		)	(206		)
Net earnings	—	—		—			—		—			—			1,181			1,181
Balances at February 2, 2008	947	$	947	$	3,031		284		$	(5,422	)	$	(122	)	$	6,480		$	4,914

Comprehensive income:

	2007			2006		2005
Net earnings	$	1,181		$	1,115	$	958
Realized loss on hedging activities, net of income tax of $1	(2		)	—		—
Unrealized gain (loss) on hedging activities, net of income tax of $12 in 2007, $(5) in 2006 and $(1) in 2005	(19		)	7		1
Additional minimum pension liability adjustment, net of income tax of $(58) in 2006 and $26 in 2005	—			95		(42		)
Change in pensions and other postretirement defined benefit plans, net of income tax of $(95)	158			—		—
Comprehensive income	$	1,318		$	1,217	$	917

The accompanying notes are an integral part of the consolidated financial statements.

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All dollar amounts are in millions except share and per share amounts.

Certain prior-year amounts have been reclassified to conform to current year presentation.

1.ACCOUNTING POLICIES

The following is a summary of the significant accounting policies followed in preparing these financial statements.

Description of Business, Basis of Presentation and Principles of Consolidation

The Kroger Co. (the “Company”) was founded in 1883 and incorporated in 1902.  As of February 2, 2008, the Company was one of the largest retailers in the United States based on annual sales.  The Company also manufactures and processes food for sale by its supermarkets.  The accompanying financial statements include the consolidated accounts of the Company and its subsidiaries.  Significant intercompany transactions and balances have been eliminated.

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest January 31.  The last three fiscal years consist of the 52-week period ended February 2, 2008, the 53-week period ended February 3, 2007, and the 52-week period ended January 28, 2006.

Pervasiveness of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities.  Disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of consolidated revenues and expenses during the reporting period also is required.  Actual results could differ from those estimates.

Cash and temporary cash investments

Cash and temporary cash investments represent store cash, escrow deposits and Euros held to settle Euro-denominated contracts. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, Foreign Currency Translation, the Company valued its carrying amount of Euros at the spot rate as of February 2, 2008.

Inventories

Inventories are stated at the lower of cost (principally on a last-in, first-out “LIFO” basis) or market.  In total, approximately 97% and 98% of inventories for 2007 and 2006, respectively, were valued using the LIFO method.  Cost for the balance of the inventories, including substantially all fuel inventories, was determined using the first-in, first-out (“FIFO”) method.  Replacement cost was higher than the carrying amount by $604 at February 2, 2008 and $450 at February 3, 2007.  The Company follows the Link-Chain, Dollar-Value LIFO method for purposes of calculating its LIFO charge or credit.

The item-cost method of accounting to determine inventory cost before the LIFO adjustment is followed for substantially all store inventories at the Company’s supermarket divisions.  This method involves counting each item in inventory, assigning costs to each of these items based on the actual purchase costs (net of vendor allowances and cash discounts) of each item and recording the cost of items sold.  The item-cost method of accounting allows for more accurate reporting of periodic inventory balances and enables management to more precisely manage inventory when compared to the retail method of accounting.

The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities.  Allowances for inventory shortages are recorded based on the results of these counts to provide for estimated shortages as of the financial statement date.

35

Property, Plant and Equipment

Property, plant and equipment are recorded at cost.  Depreciation expense, which includes the amortization of assets recorded under capital leases, is computed principally using the straight-line method over the estimated useful lives of individual assets. Buildings and land improvements are depreciated based on lives varying from 10 to 40 years. All new purchases of store equipment are assigned lives varying from three to nine years. Some store equipment acquired as a result of the Fred Meyer merger was assigned a 15-year life. The life of this equipment was not changed. Leasehold improvements are amortized over the shorter of the lease term to which they relate, which varies from four to 25 years, or the useful life of the asset.  Manufacturing plant and distribution center equipment is depreciated over lives varying from three to 15 years. Information technology assets are generally depreciated over five years.  Depreciation and amortization expense was $1,356 in 2007, $1,272 in 2006 and $1,265 in 2005.

Interest costs on significant projects constructed for the Company’s own use are capitalized as part of the costs of the newly constructed facilities.  Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the balance sheet and any gain or loss is reflected in net earnings.

Deferred Rent

The Company recognizes rent holidays, including the time period during which the Company has access to the property for construction of buildings or improvements and escalating rent provisions on a straight-line basis over the term of the lease.  The deferred amount is included in Other Current Liabilities and Other Long-Term Liabilities on the Company’s Consolidated Balance Sheets.

Goodwill

The Company reviews goodwill for impairment during the fourth quarter of each year, and also upon the occurrence of trigger events.  The reviews are performed at the operating division level.  Generally, fair value is determined using a multiple of earnings, or discounted projected future cash flows, and is compared to the carrying value of a division for purposes of identifying potential impairment.  Projected future cash flows are based on management’s knowledge of the current operating environment and expectations for the future.  If potential for impairment is identified, the fair value of a division is measured against the fair value of its underlying assets and liabilities, excluding goodwill, to estimate an implied fair value of the division’s goodwill.  Goodwill impairment is recognized for any excess of the carrying value of the division’s goodwill over the implied fair value.  Results of the goodwill impairment reviews performed during 2007, 2006 and 2005 are summarized in Note 2 to the Consolidated Financial Statements.

Intangible Assets

In addition to goodwill, the Company has recorded intangible assets totaling $32, $24 and $34 for leasehold equities, liquor licenses and pharmacy prescription file purchases, respectively at February 2, 2008.  Balances at February 3, 2007 were $26, $22 and $28 for leasehold equities, liquor licenses and pharmacy prescription files, respectively.  Leasehold equities are amortized over the remaining life of the lease.  Owned liquor licenses are not amortized, while liquor licenses that must be renewed are amortized over their useful lives.  Pharmacy prescription file purchases are amortized over seven years.  These assets are considered annually during the Company’s testing for impairment.

36

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether certain trigger 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 trigger event occurs, an impairment calculation is performed, comparing projected undiscounted future cash flows, utilizing current cash flow information and expected growth rates related to specific stores, to the carrying value for those stores.  If impairment is identified for long-lived assets to be held and used, discounted future cash flows are compared to the asset’s current carrying value.  Impairment is recorded when the carrying value exceeds the discounted cash flows.  With respect to owned property and equipment held for sale, the value of the property and equipment is adjusted to reflect recoverable values based on previous efforts to dispose of similar assets and current economic conditions.  Impairment is recognized for the excess of the carrying value over the estimated fair market value, reduced by estimated direct costs of disposal. The Company recorded asset impairments in the normal course of business totaling $24, $61 and $48 in 2007, 2006 and 2005, respectively. Costs to reduce the carrying value of long-lived assets for each of the years presented have been included in the Consolidated Statements of Operations as “Operating, general and administrative” expense.

Store Closing Costs

All closed store liabilities related to exit or disposal activities initiated after December 31, 2002, are accounted for in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.  The Company provides for closed store liabilities relating to the present value of the estimated remaining noncancellable lease payments after the closing date, net of estimated subtenant income.  The Company estimates the net lease liabilities using a discount rate to calculate the present value of the remaining net rent payments on closed stores.  The closed store lease liabilities usually are paid over the lease terms associated with the closed stores, which generally have remaining terms ranging from one to 20 years.  Adjustments to closed store liabilities primarily relate to changes in subtenant income and actual exit costs differing from original estimates.  Adjustments are made for changes in estimates in the period in which the change becomes known.  Store closing liabilities are reviewed quarterly to ensure that any accrued amount that is not a sufficient estimate of future costs, or that no longer is needed for its originally intended purpose, is adjusted to income in the proper period.

Owned stores held for disposal are reduced to their estimated net realizable value.  Costs to reduce the carrying values of property, equipment and leasehold improvements are accounted for in accordance with the Company’s policy on impairment of long-lived assets.  Inventory write-downs, if any, in connection with store closings, are classified in “Merchandise costs.”  Costs to transfer inventory and equipment from closed stores are expensed as incurred.

The following table summarizes accrual activity for future lease obligations of stores closed that were closed in the normal course of business and locations closed in California prior to the Fred Meyer merger in 1999.

	Future Lease Obligations
Balance at January 28, 2006	$	127
Additions	9
Payments	(20		)
Adjustments	(27		)
Balance at February 3, 2007	89
Additions	8
Payments	(16		)
Adjustments	(7		)
Balance at February 2, 2008	$	74

Interest Rate Risk Management

The Company uses derivative instruments primarily to manage its exposure to changes in interest rates.  The Company’s current program relative to interest rate protection and the methods by which the Company accounts for its derivative instruments are described in Note 6.

37

Commodity Price Protection

The Company enters into purchase commitments for various resources, including raw materials utilized in its manufacturing facilities and energy to be used in its stores, manufacturing facilities and administrative offices.  The Company enters into commitments expecting to take delivery of and to utilize those resources in the conduct of the normal course of business.  The Company’s current program relative to commodity price protection and the methods by which the Company accounts for its purchase commitments are described in Note 6.

Benefit Plans

Effective February 3, 2007, the Company adopted the recognition and disclosure provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 99, 106 and 132(R), which required the recognition of the funded status of its retirement plans on the Consolidated Balance Sheet. Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized are now required to be recorded as a component of Accumulated Other Comprehensive Income (“AOCI”). The Company currently uses a December 31 measurement date. Effective for 2008, the statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The Company will adopt the measurement date change in fiscal 2008.

The determination of the obligation and expense for Company-sponsored pension plans and other post-retirement benefits is dependent on the selection of assumptions used by actuaries and the Company in calculating those amounts.  Those assumptions are described in Note 14 and include, among others, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in compensation and health care costs.  Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in future periods.  While the Company believes that the assumptions are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the pension and other post-retirement obligations and future expense.

The Company also participates in various multi-employer plans for substantially all union employees.  Pension expense for these plans is recognized as contributions are funded. Refer to Note 14 for additional information regarding the Company’s benefit plans.

Stock Option Plans

Effective January 29, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment, using the modified prospective transition method, and therefore, has not restated results for prior periods. Under this method, the Company recognizes compensation expense for all share-based payments granted after January 29, 2006, as well as all share-based payments granted prior to, but not yet vested as of, January 29, 2006, in accordance with SFAS No. 123(R). Under the fair value recognition provisions of SFAS No. 123(R), the Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award. Prior to the adoption of SFAS No. 123(R), the Company accounted for share-based payments under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB No. 25”) and the disclosure provisions of SFAS No. 123. The Company elected the alternative transition method for calculating windfall tax benefits available as of the adoption of SFAS No. 123(R). For further information regarding the adoption of SFAS No. 123(R), see Note 10 to the Consolidated Financial Statements.

Deferred Income Taxes

Deferred income taxes are recorded to reflect the tax consequences of differences between the tax basis of assets and liabilities and their financial reporting basis.  Refer to Note 4 for the types of differences that give rise to significant portions of deferred income tax assets and liabilities.  Deferred income taxes are classified as a net current or noncurrent asset or liability based on the classification of the related asset or liability for financial reporting purposes.  A deferred tax asset or liability that is not related to an asset or liability for financial reporting is classified according to the expected reversal date.

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Uncertain Tax Positions

Effective February 4, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN No. 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

Various taxing authorities periodically audit the Company’s income tax returns.  These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.  In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures.  A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved.  As of February 2, 2008, the Internal Revenue Service has concluded an examination for tax years 2002 through 2004.

The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.

Self-Insurance Costs

The Company primarily is self-insured for costs related to workers’ compensation and general liability claims.  Liabilities are actuarially determined and are recognized based on claims filed and an estimate of claims incurred but not reported.  The liabilities for workers’ compensation claims are accounted for on a present value basis.  The Company has purchased stop-loss coverage to limit its exposure to any significant exposure on a per claim basis.  The Company is insured for covered costs in excess of these per claim limits.

The following table summarizes the changes in the Company’s self-insurance liability through February 2, 2008.

	2007				2006				2005
Beginning balance	$		440		$		445		$		440
Expense	215				196				198
Claim payments	(185			)	(201			)	(193			)
Ending balance	470				440				445
Less current portion	(183			)	(165			)	(179			)
Long-term portion	$	287			$	275			$	266

The current portion of the self-insured liability is included in “Other accrued liabilities”, and the long-term portion is included in “Other long-term liabilities” in the Consolidated Balance Sheets.

The Company is also similarly self-insured for property-related losses.  The Company has purchased stop-loss coverage to limit its exposure to losses in excess of $25 on a per claim basis, except in the case of an earthquake, for which stop-loss coverage is in excess of $50 per claim, up to $200 per claim in California and $300 outside of California.

Revenue Recognition

Revenues from the sale of products are recognized at the point of sale of the Company’s products.  Discounts provided to customers by the Company at the time of sale, including those provided in connection with loyalty cards, are recognized as a reduction in sales as the products are sold.  Discounts provided by vendors, usually in the form of paper coupons, are not recognized as a reduction in sales provided the coupons are redeemable at any retailer that accepts coupons.  Pharmacy sales are recorded when provided to the customer.  Sales taxes are not recorded as a component of sales.  The Company does not recognize a sale when it sells gift cards and gift certificates.  Rather, a sale is recognized when the gift card or gift certificate is redeemed to purchase the Company’s products.

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Merchandise Costs

The “Merchandise costs” line item of the Consolidated Statements of Operations includes product costs, net of discounts and allowances; advertising costs (see separate discussion below); inbound freight charges; warehousing costs, including receiving and inspection costs; transportation costs; and manufacturing production and operational costs.  Warehousing, transportation and manufacturing management salaries are also included in the “Merchandise costs” line item; however, purchasing management salaries and administration costs are included in the “Operating, general, and administrative” line item along with most of the Company’s other managerial and administrative costs.  Rent expense and depreciation expense are shown separately in the Consolidated Statements of Operations.

Warehousing and transportation costs include distribution center direct wages, repairs and maintenance, utilities, inbound freight and, where applicable, third party warehouse management fees, as well as transportation direct wages and repairs and maintenance.  These costs are recognized in the periods the related expenses are incurred.

The Company believes the classification of costs included in merchandise costs could vary widely throughout the industry.  The Company’s approach is to include in the “Merchandise costs” line item the direct, net costs of acquiring products and making them available to customers in its stores.  The Company believes this approach most accurately presents the actual costs of products sold.

The Company recognizes all vendor allowances as a reduction in merchandise costs when the related product is sold.  When possible, vendor allowances are applied to the related product by item and, therefore, reduce the carrying value of inventory by item.  When the items are sold, the vendor allowance is recognized.  When it is not possible, due to systems constraints, to allocate vendor allowances to the product by item, vendor allowances are recognized as a reduction in merchandise costs based on inventory turns and, therefore, recognized as the product is sold.

Advertising Costs

The Company’s advertising costs are recognized in the periods the related expenses are incurred and are included in the “Merchandise costs” line item of the Consolidated Statements of Operations.  The Company’s pre-tax advertising costs totaled $506 in 2007, $508 in 2006 and $498 in 2005.  The Company does not record vendor allowances for co-operative advertising as a reduction of advertising expense.

Deposits In-Transit

Deposits in-transit generally represent funds deposited to the Company’s bank accounts at the end of the year related to sales, a majority of which were paid for with credit cards and checks, to which the Company does not have immediate access.

Consolidated Statements of Cash Flows

For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be temporary cash investments.  Book overdrafts, which are included in accounts payable, represent disbursements that are funded as the item is presented for payment.  Book overdrafts totaled $661, $600 and $596 as of February 2, 2008, February 3, 2007, and January 28, 2006, respectively, and are reflected as a financing activity in the Consolidated Statements of Cash Flows.

Segments

The Company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores throughout the United States.  The Company’s retail operations, which represent substantially all of the Company’s consolidated sales, are its only reportable segment. All of the Company’s operations are domestic.

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2.GOODWILL

The annual evaluation of goodwill performed during the fourth quarter of 2007, 2006 and 2005 did not result in impairment.

The following table summarizes the changes in the Company’s net goodwill balance through February 2, 2008.

	Goodwill
Balance at January 29, 2005	$	2,191
Goodwill recorded	—
Purchase accounting adjustments	1
Balance at January 28, 2006	2,192
Goodwill recorded	—
Purchase accounting adjustments	—
Balance at February 3, 2007	2,192
Goodwill recorded	23
Effect of FIN 48 adoption	(71		)
Balance at February 2, 2008	$	2,144

In the second quarter of 2007, the Company completed acquisitions of 18 Scott’s retail food stores in Northeast Indiana and 20 Farmer Jack retail food stores in Michigan for approximately $86. The transactions were recorded using the purchase method of accounting. Assets and liabilities were recorded based on fair values with the purchase prices being primarily allocated to inventory, property, plant and equipment and goodwill. The results of operations are included in the Company’s Consolidated Financial Statements since the date of acquisition.

The proforma effects of these acquisitions are not material to previously reported results.

3.                PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consists of:

	2007			2006
Land	$	1,779		$	1,690
Buildings and land improvements	5,875			5,402
Equipment	8,620			8,255
Leasehold improvements	4,626			4,221
Construction-in-progress	965			822
Leased property under capital leases and financing obligations	571			592
Total property, plant and equipment	22,436			20,982
Accumulated depreciation and amortization	(9,938		)	(9,203		)
Property, plant and equipment, net	$	12,498		$	11,779

Accumulated depreciation for leased property under capital leases was $286 at February 2, 2008, and $288 at February 3, 2007.

Approximately $540 and $566, original cost, of Property, Plant and Equipment collateralized certain mortgages at February 2, 2008, and February 3, 2007, respectively.

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4.TAXES BASED ON INCOME

The provision for taxes based on income consists of:

	2007			2006			2005
Federal
Current	$	661		$	652		$	609
Deferred	(62		)	(52		)	(79		)
	599			600			530
State and local
Current	71			55			42
Deferred	(24		)	(22		)	(5		)
	47			33			37
Total	$	646		$	633		$	567

A reconciliation of the statutory federal rate and the effective rate follows:

	2007		2006		2005
Statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	1.7	%	1.9	%	1.6	%
Favorable resolution of issues	(1.9	)%	—		—
Deferred tax adjustment	—		(1.2	)%	—
Other changes, net	0.6	%	0.5	%	0.6	%
	35.4	%	36.2	%	37.2	%

During the third quarter of 2007, the Company resolved favorably certain tax issues. This resulted in a 2007 tax benefit of approximately $40.

In 2006, during the reconciliation of the Company’s deferred tax balances, after the filing of annual federal and state tax returns, the Company identified adjustments to be made in the prior years’ deferred tax reconciliation. These deferred tax balances were corrected in the Company’s Consolidated Financial Statements for the year ended February 3, 2007, which resulted in a reduction of the Company’s 2006 provision for income tax expense of approximately $21. The Company does not believe these adjustments are material to its Consolidated Financial Statements for the year ended February 3, 2007, or to any prior years’ Consolidated Financial Statements. As a result, the Company has not restated any prior year amounts.

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The tax effects of significant temporary differences that comprise tax balances were as follows:

	2007			2006
Current deferred tax assets:
Net operating loss carryforwards	$	16		$	17
Compensation related costs	53			32
Other	8			4
Total current deferred tax assets	77			53
Current deferred tax liabilities:
Insurance related costs	(104		)	(109		)
Inventory related costs	(212		)	(212		)
Total current deferred tax liabilities	(316		)	(321		)
Current deferred taxes	$	(239	)	$	(268	)
Long-term deferred tax assets:
Compensation related costs	$	268		$	332
Lease accounting	102			122
Closed store reserves	68			68
Insurance related costs	64			39
Net operating loss carryforwards	35			29
Other	23			3
Long-term deferred tax assets, net	560			593
Long-term deferred tax liabilities:
Depreciation	(926		)	(1,114		)
Other	(1		)	(201		)
Total long-term deferred tax liabilities	(927		)	(1,315		)
Long-term deferred taxes	$	(367	)	$	(722	)

Long-term deferred taxes have decreased compared to 2006 due to the classification of temporary differences on a basis consistent with FIN No. 48.  The result was a reclassification of approximately $500 as of the date of adoption.

At February 2, 2008, the Company had net operating loss carryforwards for federal income tax purposes of $22 that expire from 2010 through 2018.  In addition, the Company had net operating loss carryforwards for state income tax purposes of $598 that expire from 2008 through 2028.  The utilization of certain of the Company’s net operating loss carryforwards may be limited in a given year.

At February 2, 2008, the Company had state credits of $31 that expire from 2008 through 2021.  The utilization of certain of the Company’s credits may be limited in a given year.

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The Company adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income Taxes on February 4, 2007. As of adoption, the total amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $694. A reconciliation of the beginning and ending amount of unrecognized tax benefits is a follows:

	2007
Balance as of February 4, 2007	$	694
Additions based on tax positions related to the current year	49
Reductions based on tax positions related to the current year	(32		)
Additions for tax positions of prior years	11
Reductions for tax positions of prior years	(162		)
Settlements	(90		)
Reductions due to lapse of statute of limitations	(1		)
Balance as of February 2, 2008	$	469

The Company does not anticipate that changes in the amount of unrecognized tax benefits over the next twelve months will have a significant impact on its results of operations or financial position.

As February 2, 2008, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $120.

To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and classified as a component of income tax expense. During the year ended February 2, 2008, the Company recognized approximately $(11) in interest and penalties. The Company had accrued approximately $101 and $118 for the payment of interest and penalties as of February 2, 2008 and February 3, 2007, respectively.

The IRS concluded a field examination of the Company’s 2002 – 2004 U.S. tax returns during the third quarter of 2007. An examination of the Company’s 1999 – 2001 U.S. tax returns was completed in 2005. The Company contested two issues at the appellate level of the IRS. One of the issues was resolved in the third quarter of 2007 and we anticipate that the remaining issue may be resolved within the next 12 months. In the opinion of management, the ultimate disposition of the item noted above will not have a significant effect on our consolidated financial position, liquidity, or results of operations. Additionally, the Company has a case in the U.S. Tax Court. A decision on this case is not expected within the next 12 months. In connection with this case, the Company has extended the statute of limitations on our tax years after 1991 and those years remain open to examination. States have a limited time frame to review and adjust federal audit changes reported. Assessments made and refunds allowed are generally limited to the federal audit changes reported.

5.             DEBT OBLIGATIONS

Long-term debt consists of:

	2007			2006
Credit facility	$	570		$	352
4.95% to 9.20% Senior notes and debentures due through 2031	6,766			5,916
5.00% to 9.95% mortgages due in varying amounts through 2034	166			169
Other	137			144
Total debt	7,639			6,581
Less current portion	(1,564		)	(878		)
Total long-term debt	$	6,075		$	5,703

In 2007, the Company issued $600 of senior notes bearing an interest rate of 6.4% due in 2017 and $750 of senior notes bearing an interest rate of 6.15% due in 2020.

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As of February 2, 2008, the Company had a $2,500 Five-Year Credit Agreement maturing in 2011, unless earlier terminated by the Company.  Borrowings under the credit agreement bear interest at the option of the Company at a rate equal to either (i) the highest, from time to time of (A) the base rate of JP Morgan Chase Bank, N.A., (B) ½% over a moving average of secondary market morning offering rates for three-month certificates of deposit adjusted for reserve requirements, and (C) ½% over the federal funds rate or (ii) an adjusted Eurodollar rate based upon the London Interbank Offered Rate (“Eurodollar Rate”) plus an applicable margin.  In addition, the Company pays a facility fee in connection with the credit agreement.  Both the applicable margin and the facility fee vary based upon the Company’s achievement of a financial ratio or credit rating.  At February 2, 2008, the applicable margin was 0.19%, and the facility fee was 0.06%.  The credit facility contains covenants, which, among other things, require the maintenance of certain financial ratios, including fixed charge coverage and leverage ratios.  The Company may prepay the credit agreement in whole or in part, at any time, without a prepayment penalty. As of February 2, 2008, the Company had $570 outstanding under the credit agreement including borrowings totaling $345 under its P2/F2/A3 rated commercial paper program.  Any borrowings under this program are backed by the Company’s credit facility and reduce the amount available under the credit facility. The weighted average interest rate on the amounts outstanding under the credit agreement was 3.69% at February 2, 2008.

At February 2, 2008, the Company also maintains four money market lines totaling $125 in the aggregate.  In addition to credit agreement borrowings, borrowings under the money market lines and some outstanding letters of credit reduce funds available under the Company’s credit agreement. The Company had no borrowings under the money market lines at February 2, 2008. The outstanding letters of credit that reduce funds available under the Company’s credit agreement totaled $355 as of February 2, 2008.

Most of the Company’s outstanding public debt is subject to early redemption at varying times and premiums, at the option of the Company.  In addition, subject to certain conditions, some of the Company’s publicly issued debt will be subject to redemption, in whole or in part, at the option of the holder upon the occurrence of a redemption event, upon not less than five days’ notice prior to the date of redemption, at a redemption price equal to the default amount, plus a specified premium.  “Redemption Event” is defined in the indentures as the occurrence of (i) any person or group, together with any affiliate thereof, beneficially owning 50% or more of the voting power of the Company, (ii) any one person or group, or affiliate thereof, succeeding in having a majority of its nominees elected to the Company’s Board of Directors, in each case, without the consent of a majority of the continuing directors of the Company or (iii) both a change of control and a below investment grade rating.

The aggregate annual maturities and scheduled payments of long-term debt, as of year-end 2007, and for the years subsequent to 2007 are:

2008	$	1,564
2009	402
2010	555
2011	527
2012	1,400
Thereafter	3,191
Total debt	$	7,639

6.FINANCIAL INSTRUMENTS

Interest Rate Risk Management

The Company historically has used derivatives to manage its exposure to changes in interest rates.  The interest differential to be paid or received is accrued as interest expense. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, defines derivatives, requires that derivatives be carried at fair value on the balance sheet and provides for hedge accounting when certain conditions are met.  In accordance with this standard, the Company’s derivative financial instruments are recognized on the balance sheet at fair value.  Changes in the fair value of derivative instruments designated as “cash flow” hedges, to the extent the hedges are highly effective, are recorded in other comprehensive income, net of tax effects. Ineffective portions of cash flow hedges, if any, are recognized in current period earnings.  Other comprehensive income or loss is reclassified into current period earnings when the hedged transaction affects earnings.  Changes in the fair value of derivative instruments designated as “fair value” hedges, along with corresponding changes in the fair values of the hedged assets or liabilities, are recorded in current period earnings.

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The Company assesses, both at the inception of the hedge and on an ongoing basis, whether derivatives used as hedging instruments are highly effective in offsetting the changes in the fair value or cash flow of the hedged items.  If it is determined that a derivative is not highly effective as a hedge or ceases to be highly effective, the Company discontinues hedge accounting prospectively.

The Company’s current program relative to interest rate protection contemplates hedging the exposure to changes in the fair value of fixed-rate debt attributable to changes in interest rates.  To do this, the Company uses the following guidelines: (i) use average daily outstanding borrowings to determine annual debt amounts subject to interest rate exposure, (ii) limit the average annual amount subject to interest rate reset and the amount of floating rate debt to a combined total of $2,500 million or less, (iii) include no leverage products, and (iv) hedge without regard to profit motive or sensitivity to current mark-to-market status.

Annually, the Company reviews with the Financial Policy Committee of the Board of Directors compliance with the guidelines.  These guidelines may change as the Company’s needs dictate.

The table below summarizes the outstanding interest rate swaps designated as fair value hedges as of February 2, 2008, and February 3, 2007.

	2007					2006
	Pay			Pay		Pay			Pay
	Floating			Fixed		Floating			Fixed
Notional amount	$	1,050		$	—	$	1,050		$	—
Duration in years	2.07			—		3.08			—
Average variable rate	5.97		%	—		8.07		%	—
Average fixed rate	6.74		%	—		6.74		%	—

In addition to the interest rate swaps noted above, in 2005 the Company entered into three forward-starting interest rate swap agreements with a notional amount totaling $750.  A forward-starting interest rate swap is an agreement that effectively hedges future benchmark interest rates on debt for an established period of time.  The Company entered into the forward-starting interest rate swaps in order to lock into fixed interest rates on forecasted issuances of debt in 2007 and 2008. In 2007, the Company terminated two of these forward-starting interest rate swaps with a notional amount of $500. The unamortized payment and proceeds on the two terminated forward-starting interest rate swaps have been recorded net of tax in other comprehensive income and will be amortized to earnings as the payments of interest to which the hedge relates are made.  The one remaining forward-starting interest rate swap as of February 2, 2008 has a ten-year term with an interest rate of 5.11%.

Commodity Price Protection

The Company enters into purchase commitments for various resources, including raw materials utilized in its manufacturing facilities and energy to be used in its stores, warehouses, manufacturing facilities and administrative offices.  The Company enters into commitments expecting to take delivery of and to utilize those resources in the conduct of normal business.  Those commitments for which the Company expects to utilize or take delivery in a reasonable amount of time in the normal course of business qualify as normal purchases and normal sales.

Some of the product the Company purchases is shipped in corrugated cardboard packaging.  The corrugated cardboard is sold when it is economical to do so. As of February 2, 2008, the Company maintained three derivative instruments to manage exposure to changes in corrugated cardboard prices.  These derivatives have a three-year term. The instruments do not qualify for hedge accounting, in accordance with SFAS No. 133, Accounting for Derivative Investments and Hedging Activities, as amended.  Accordingly, changes in the fair value of these instruments are marked-to-market in the Company’s Consolidated Statements of Operations as operating, general and administrative (“OG&A”) expenses.  As of February 2, 2008, an accrued liability totaling $1 had been recorded to reflect the fair value of these instruments.

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7.FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it was practicable to estimate that value:

Cash and Temporary Cash Investments, Store Deposits In-Transit, Receivables, Prepaid and Other Current Assets, Accounts Payable, Accrued Salaries and Wages and Other Current Liabilities

The carrying amounts of these items approximated fair value.

Long-term Investments

The fair values of these investments were estimated based on quoted market prices for those or similar investments, or estimated cash flows, if appropriate.

Long-term Debt

The fair value of the Company’s long-term debt, including the current portion thereof and excluding borrowings under the credit facility, was estimated based on the quoted market price for the same or similar issues adjusted for illiquidity based on available market evidence.  If quoted market prices were not available, the fair value was based upon the net present value of the future cash flows using the forward interest rate yield curve in effect at the respective year-ends.  The carrying values of long-term debt outstanding under the Company’s credit facility approximated fair value.

Interest Rate Protection Agreements

The fair value of these agreements was based on the net present value of the future cash flows using the forward interest rate yield curve in effect at the respective year-ends.

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The estimated fair values of the Company’s financial instruments are as follows:

	2007						2006
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
Cash and temporary cash investments	$	242		$	242		$	189		$	189
Store deposits in-transit	$	676		$	676		$	614		$	614
Long-term investments for which it is
Practicable	$	75		$	75		$	60		$	60
Not Practicable	$	—		$	—		$	—		$	—
Debt for which it is(1)
Practicable	$	(7,639	)	$	(7,973	)	$	(6,581	)	$	(6,859	)
Not Practicable	$	—		$	—		$	—		$	—
Interest Rate Protection Agreements
Receive fixed swaps asset/(liability)(2)	$	11		$	11		$	(28	)	$	(28	)
Forward-starting swap asset/(liability)(3)	$	(18	)	$	(18	)	$	12		$	12
Corrugated Cardboard Price Protection Agreements(4)	$	(1	)	$	(1	)	$	—		$	—

(1)	Excludes capital lease and lease-financing obligations.
(2)	As of February 2, 2008 and February 3, 2007, the Company maintained six interest rate swap agreements, with notional amounts totaling $1,050, to manage its exposure to changes in the fair value of its fixed rate debt resulting from interest rate movements by effectively converting a portion of the Company’s debt from fixed to variable rates.  These agreements mature at varying times between March 2008 and January 2015.  The differential between fixed and variable rates to be paid or received is accrued as interest rates change in accordance with the agreements as an adjustment to interest expense.  These interest rate swap agreements are being accounted for as fair value hedges.  As of February 2, 2008, other long-term assets totaling $11 were recorded to reflect the fair value of these agreements, offset by increases in the fair value of the underlying debt. As of February 3, 2007, other long-term liabilities totaling $28 were recorded to reflect the fair value of these agreements, offset by decreases in the fair value of the underlying debt.
(3)	As of February 2, 2008 and February 3, 2007, the Company maintained one and three forward-starting interest rate swap agreements, with a notional amount of $250 and $750, respectively, to manage its exposure to changes in future benchmark interest rates.  A forward-starting interest rate swap is an agreement that effectively hedges future benchmark interest rates on debt for an established period of time.  The Company entered into the forward-starting interest rate swaps in order to lock in fixed interest rates on the Company’s forecasted issuances of debt in 2007 and 2008.  As of February 2, 2008 and February 3, 2007, other long-term liabilities and assets totaling $18 and $12, respectively, were recorded to reflect the fair value of these agreements.
(4)	See Note 6 for a description of the corrugated cardboard price protection agreements.

8.LEASES AND LEASE-FINANCED TRANSACTIONS

The Company operates primarily in leased facilities. Lease terms generally range from 10 to 20 years with options to renew for varying terms. Terms of certain leases include escalation clauses, percentage rent based on sales or payment of executory costs such as property taxes, utilities or insurance and maintenance. Rent expense for leases with escalation clauses or other lease concessions are accounted for on a straight-line basis beginning with the earlier of the lease commencement date or the date the Company takes possession.  Portions of certain properties are subleased to others for periods generally ranging from one to 20 years.

Rent expense (under operating leases) consists of:

	2007			2006			2005
Minimum rentals	$	747		$	753		$	760
Contingent payments	11			10			8
Sublease income	(114		)	(114		)	(107		)
Total rent expense	$	644		$	649		$	661

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Minimum annual rentals and payments under capital leases and lease-financed transactions for the five years subsequent to 2007 and in the aggregate are:

	Capital Leases			Operating Leases		Lease- Financed Transactions
2008	$	54		$	774	$	5
2009	53			736		5
2010	51			693		5
2011	55			630		6
2012	46			578		6
Thereafter	237			3,459		114
	496			$	6,870	$	141
Less estimated executory costs included in capital leases	(1		)
Net minimum lease payments under capital leases	495
Less amount representing interest	(198		)
Present value of net minimum lease payments under capital leases	$	297

Total future minimum rentals under noncancellable subleases at February 2, 2008, were $553.

9.EARNINGS PER COMMON SHARE

Basic earnings per common share equals net earnings divided by the weighted average number of common shares outstanding.  Diluted earnings per common share equals net earnings divided by the weighted average number of common shares outstanding after giving effect to dilutive stock options and warrants.

The following table provides a reconciliation of earnings and shares used in calculating basic earnings per share to those used in calculating diluted earnings per share.

	For the year ended February 2, 2008					For the year ended February 3, 2007					For the year ended January 28, 2006
(in millions, except per share amounts)	Earnings (Numerator)		Shares (Denominator)	Per Share Amount		Earnings (Numerator)		Shares (Denominator)	Per Share Amount		Earnings (Numerator)		Shares (Denominator)	Per Share Amount
Basic EPS	$	1,181	690	$	1.71	$	1,115	715	$	1.56	$	958	724	$	1.32
Dilutive effect of stock option awards and warrants			8					8					7
Diluted EPS	$	1,181	698	$	1.69	$	1,115	723	$	1.54	$	958	731	$	1.31

For the years ended February 2, 2008, February 3, 2007 and January 28, 2006, there were options outstanding for approximately 2.0 million, 25.4 million and 24.6 million shares of common stock, respectively, that were excluded from the computation of diluted EPS.  These shares were excluded because their inclusion would have had an anti-dilutive effect on EPS.

10.STOCK OPTION PLANS

Prior to January 29, 2006, the Company applied APB No. 25, and related interpretations, in accounting for its stock option plans and provided the pro-forma disclosures required by SFAS No. 123. APB No. 25 provided for recognition of compensation expense for employee stock awards based on the intrinsic value of the award on the grant date.

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The Company grants options for common stock (“stock options”) to employees, as well as to its non-employee directors, under various plans at an option price equal to the fair market value of the stock at the date of grant. Equity awards may be made at one of four meetings of its Board of Directors occurring shortly after the Company’s release of quarterly earnings. The 2007 annual grant was made in conjunction with the June meeting of the Company’s Board of Directors.

Stock options typically expire 10 years from the date of grant. Stock options vest between one and five years from the date of grant, or for certain stock options, the earlier of the Company’s stock reaching certain pre-determined and appreciated market prices or nine years and six months from the date of grant. Under APB No. 25, the Company did not recognize compensation expense for these stock option grants. At February 2, 2008, approximately 11 million shares of common stock were available for future option grants under these plans.

In addition to the stock options described above, the Company awards restricted stock to employees under various plans. The restrictions on these awards generally lapse between one and five years from the date of the awards and expense is recognized over the lapsing cycle. Under APB No. 25, the Company generally recorded expense for restricted stock awards in an amount equal to the fair market value of the underlying stock on the date of award. As of February 2, 2008, approximately three million shares of common stock were available for future restricted stock awards under the 2005 Long-Term Incentive Plan (the “Plan”). The Company has the ability to convert shares available for stock options under the Plan to shares available for restricted stock awards. Four shares available for common stock option awards can be converted into one share available for restricted stock awards.

All awards become immediately exercisable upon certain changes of control of the Company.

Historically, stock option awards were granted to various employees throughout the organization. Restricted stock awards, however, were limited to approximately 150 associates, including members of the Board of Directors and certain members of senior management. Beginning in 2006, the Company began issuing a combination of stock option and restricted stock awards to those employees who previously received only stock option awards, in an effort to further align those employees’ interests with those of the Company’s non-employee shareholders. As a result, the number of stock option awards granted in 2007 and 2006 decreased and the number of restricted stock awards granted increased.

Stock Options

Changes in options outstanding under the stock option plans are summarized below:

	Shares subject to option (in millions)		Weighted- average exercise price
Outstanding, year-end 2004	61.5		$	18.20
Granted	6.8		$	16.50
Exercised	(7.7	)	$	9.81
Canceled or Expired	(1.3	)	$	20.92
Outstanding, year-end 2005	59.3		$	19.03
Granted	3.2		$	20.05
Exercised	(9.5	)	$	13.34
Canceled or Expired	(1.1	)	$	21.01
Outstanding, year-end 2006	51.9		$	20.09
Granted	3.4		$	28.21
Exercised	(10.1	)	$	19.05
Canceled or Expired	(.4	)	$	20.79
Outstanding, year-end 2007	44.8		$	20.94

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A summary of options outstanding and exercisable at February 2, 2008 follows:

Range of Exercise Prices		Number outstanding	Weighted- average remaining contractual life	Weighted- average exercise price		Options exercisable	Weighted- average exercise price
		(in millions)	(in years)			(in millions)
$	13.78 - $14.93	5.2	4.85	$	14.91	5.2	$	14.91
$	14.94 - $16.39	5.3	7.13	$	16.35	2.7	$	16.33
$	16.40 - $17.31	8.7	4.33	$	16.97	6.7	$	16.96
$	17.32 - $22.99	11.4	4.09	$	21.80	8.6	$	22.10
$	23.00 - $31.91	14.2	3.83	$	26.57	9.1	$	26.05
$	13.78 - $31.91	44.8	4.50	$	20.94	32.3	$	20.51

The weighted-average remaining contractual life for options exercisable at February 2, 2008, was approximately 3.7 years.

Restricted stock

	Restricted shares outstanding		Weighted- average grant-date
	(in millions)		fair value
Outstanding, year-end 2005	.7		$	17.85
Granted	2.2		$	20.16
Lapsed	(0.4	)	$	17.46
Canceled or Expired	(0.1	)	$	19.41
Outstanding, year-end 2006	2.4		$	20.02
Granted	2.5		$	28.20
Lapsed	(1.4	)	$	19.90
Canceled or Expired	(0.1	)	$	22.69
Outstanding, year-end 2007	3.4		$	25.89

Adoption of SFAS No. 123(R)

Effective January 29, 2006, the Company adopted the provisions of SFAS No. 123(R), Share-Based Payment, using the modified-prospective method. Under this method, the Company recognizes compensation expense for all share-based awards granted prior to, but not yet vested as of, January 29, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation. For all share-based awards granted on or after January 29, 2006, the Company recognizes compensation expense based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).

In accordance with the provisions of the modified-prospective transition method, results for prior periods have not been restated. Compensation expense for all share-based awards described above was recognized using the straight-line attribution method applied to the fair value of each option grant, over the requisite service period associated with each award. The requisite service period is typically consistent with the vesting period, except as noted below. Because awards typically vest evenly over the requisite service period, compensation cost recognized through February 2, 2008, is at least equal to the grant-date fair value of the vested portion of all outstanding awards. All of the Company stock-based incentive plans are considered equity plans under SFAS No. 123(R).

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The weighted-average fair value of stock options granted during 2007, 2006 and 2005 was $9.66, $6.90 and $7.70, respectively. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model, based on the assumptions shown in the table below. The Black-Scholes model utilizes extensive accounting judgment and financial estimates, including the term employees are expected to retain their stock options before exercising them, the volatility of the Company’s stock price over that expected term, the dividend yield over the term and the number of awards expected to be forfeited before they vest. Using alternative assumptions in the calculation of fair value would produce fair values for stock option grants that could be different than those used to record stock-based compensation expense in the Consolidated Statements of Operations.

The following table reflects the weighted-average assumptions used for grants awarded to option holders:

	2007		2006		2005
Weighted average expected volatility (based on historical volatility)	29.23	%	27.60	%	30.83	%
Weighted average risk-free interest rate	5.06	%	5.07	%	4.11	%
Expected dividend yield	1.40	%	1.50	%	N/A
Expected term (based on historical results)	6.9 years		7.5 years		8.7 years

The weighted-average risk-free interest rate was based on the yield of a treasury note as of the grant date, continuously compounded, which matures at a date that approximates the expected term of options. Prior to 2006, the Company did not pay a dividend, so an expected dividend rate was not included in the determination of fair value for options granted during those years. Using a dividend yield of 1.50% to value options issued in 2005 would have decreased the fair value of each option by approximately $1.60. Expected volatility was determined based upon historical stock volatilities; however, implied volatility was also considered. Expected term was determined based upon a combination of historical exercise and cancellation experience as well as estimates of expected future exercise and cancellation experience.

Under SFAS No. 123(R), the Company records expense for restricted stock awards in an amount equal to the fair market value of the underlying stock on the grant date of the award, over the period the awards lapse.

Total stock compensation recognized in 2007, 2006 and 2005 was $87, $72 and $7, respectively. Stock option compensation recognized in 2007 and 2006 was $51 and $50, respectively. Restricted shares compensation recognized in 2007, 2006 and 2005 was $36, $22 and $7 respectively.

If compensation cost for the Company’s stock option plans for the year ended January 28, 2006 had been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, the net earnings and diluted earnings per common share would have been reduced to the pro forma amounts below:

	2005
Net earnings, as reported	$	958
Stock-based compensation expense included in net earnings, net of income tax benefits	5
Total stock-based compensation expense determined under fair value method for all awards, net of income tax benefits	(34		)
Pro forma net earnings	$	929
Earnings per basic common share, as reported	$	1.32
Pro forma earnings per basic common share	$	1.28
Earnings per diluted common share, as reported	$	1.31
Pro forma earnings per diluted common share	$	1.27

The total intrinsic value of options exercised was $33 and $79 in 2007 and 2006, respectively. The total amount of cash received from the exercise of options granted under share-based payment arrangements was $188. As of February 2, 2008, there was $110 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the Company’s equity award plans. This cost is expected to be recognized over a weighted-average period of approximately one year. The total fair value of options that vested was $53 and $44 in 2007 and 2006, respectively.

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Shares issued as a result of stock option exercises may be newly issued shares or reissued treasury shares. Proceeds received from the exercise of options, and the related tax benefit, are utilized to repurchase shares of the Company’s stock under a stock repurchase program adopted by the Company’s Board of Directors. During 2007, the Company repurchased approximately 10 million shares of stock in such a manner.

For share-based awards granted prior to the adoption of SFAS No. 123(R), the Company’s stock option grants generally contained retirement-eligibility provisions that caused the options to vest upon the earlier of the stated vesting date or retirement. Compensation expense was calculated over the stated vesting periods, regardless of whether certain employees became retirement-eligible during the respective vesting periods. Upon the adoption of SFAS No. 123(R), the Company continued this method of recognizing compensation expense for awards granted prior to the adoption of SFAS No. 123(R). For awards granted on or after January 29, 2006, options vest based on the stated vesting date, even if an employee retires prior to the vesting date. The requisite service period ends, however, on the employee’s retirement-eligible date. As a result, the Company recognizes expense for stock option grants containing such retirement-eligibility provisions over the shorter of the vesting period or the period until employees become retirement-eligible (the requisite service period). As a result of retirement eligibility provisions in stock option awards granted on or after January 29, 2006, approximately $13 of compensation expense was recognized in 2007 prior to the completion of stated vesting periods.

11.  COMMITMENTS AND CONTINGENCIES

The Company continuously evaluates contingencies based upon the best available evidence.

The Company believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable.  To the extent that resolution of contingencies results in amounts that vary from the Company’s estimates, future earnings will be charged or credited.

The principal contingencies are described below:

Insurance — The Company’s workers’ compensation risks are self-insured in certain states. In addition, other workers’ compensation risks and certain levels of insured general liability risks are based on retrospective premium plans, deductible plans, and self-insured retention plans.  The liability for workers’ compensation risks is accounted for on a present value basis.  Actual claim settlements and expenses incident thereto may differ from the provisions for loss.  Property risks have been underwritten by a subsidiary and are reinsured with unrelated insurance companies.  Operating divisions and subsidiaries have paid premiums, and the insurance subsidiary has provided loss allowances, based upon actuarially determined estimates.

Litigation – On October 6, 2006, the Company petitioned the Tax Court (In Re: Ralphs Grocery Company and Subsidiaries, formerly known as Ralphs Supermarkets, Inc., Docket No. 20364-06) for a redetermination of deficiencies set by the Commissioner of Internal Revenue. The dispute at issue involves a 1992 transaction in which Ralphs Holding Company acquired the stock of Ralphs Grocery Company and made an election under Section 338(h)(10) of the Internal Revenue Code. The Commissioner has determined that the acquisition of the stock was not a purchase as defined by Section 338(h)(3) of the Internal Revenue Code and that the acquisition does not qualify as a purchase. The Company believes that it has strong arguments in favor of its position and believes it is more likely than not that its position will be sustained. However, due to the inherent uncertainty involved in the litigation process, there can be no assurances that the Tax Court will rule in favor of the Company. As of February 2, 2008, an adverse decision would require a cash payment of approximately $419, including interest.

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On February 2, 2004, the Attorney General for the State of California filed an action in Los Angeles federal court (California, ex rel Lockyer v. Safeway, Inc. dba Vons, a Safeway Company; Albertson’s, Inc. and Ralphs Grocery Company, a division of The Kroger Co., United States District Court Central District of California, Case No. CV04-0687) alleging that the Mutual Strike Assistance Agreement (the “Agreement”) between the Company, Albertson’s, Inc. and Safeway Inc. (collectively, the “Retailers”), which was designed to prevent the union from placing disproportionate pressure on one or more of the Retailers by picketing such Retailer(s) but not the other Retailer(s) during the labor dispute in southern California, violated Section 1 of the Sherman Act. The lawsuit seeks declarative and injunctive relief. On May 25, 2005, the Court denied a motion for a summary judgment filed by the defendants. Ralphs and the other defendants filed a notice of an interlocutory appeal to the United States Court of Appeals for the Ninth Circuit. On November 29, 2005, the appellate court dismissed the appeal. On December 7, 2006, the Court denied a motion for summary judgment filed by the State of California. The Company continues to believe it has strong defenses against this lawsuit and is vigorously defending it. Although this lawsuit is subject to uncertainties inherent to the litigation process, based on the information presently available to the Company, management does not expect that the ultimate resolution of this action will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Various claims and lawsuits arising in the normal course of business, including suits charging violations of certain antitrust, wage and hour, or civil rights laws, are pending against the Company. Some of these suits purport or have been determined to be class actions and/or seek substantial damages. Any damages that may be awarded in antitrust cases will be automatically trebled. Although it is not possible at this time to evaluate the merits of all of these claims and lawsuits, nor their likelihood of success, the Company is of the belief that any resulting liability will not have a material adverse effect on the Company’s financial position.

The Company continually evaluates its exposure to loss contingencies arising from pending or threatened litigation and believes it has made adequate provisions therefor. Nonetheless, assessing and predicting the outcomes of these matters involve substantial uncertainties. It remains possible that despite management’s current belief, material differences in actual outcomes or changes in management’s evaluation or predictions could arise that could have a material adverse impact on the Company’s financial condition or results of operation.

Guarantees – Most of the Company’s outstanding public debt is jointly and severally, fully and unconditionally guaranteed by The Kroger Co. and some of the Company’s subsidiaries.  See Note 17 to the Consolidated Financial Statements for a more detailed discussion of those arrangements.  In addition, the Company has guaranteed half of the indebtedness of two real estate entities in which Kroger has a 50% ownership interest.  The Company’s share of the responsibility for this indebtedness, should the entities be unable to meet their obligations, totals approximately $7.  Based on the covenants underlying this indebtedness as of February 2, 2008, it is unlikely that the Company will be responsible for repayment of these obligations. The Company also agreed to guarantee, up to $10, the indebtedness of an entity of which Kroger has a 25% ownership interest. The Company’s share of the responsibility, as of February 2, 2008, should the entity be unable to meet its obligations, totals approximately $9 and is collateralized by $8 of inventory located in the Company’s stores.

Assignments – The Company is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions.  The Company could be required to satisfy the obligations under the leases if any of the assignees is  unable to fulfill its lease obligations.  Due to the wide distribution of the Company’s assignments among third parties, and various other remedies available, the Company believes the likelihood that it will be required to assume a material amount of these obligations is remote.

12.  SUBSEQUENT EVENTS

On March 19, 2008, the Company announced the issuance of $400 of senior notes bearing an interest rate of 5.00% and $375 of senior notes bearing an interest rate of 6.90%, which will be due April, 2013 and April 2038, respectively.

13.  STOCK

Preferred Stock

The Company has authorized 5 million shares of voting cumulative preferred stock; 2 million were available for issuance at February 2, 2008. The stock has a par value of $100 per share and is issuable in series.

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Common Stock

The Company has authorized one billion shares of common stock, $1 par value per share.  On May 20, 1999, the shareholders authorized an amendment to the Amended Articles of Incorporation to increase the authorized shares of common stock from 1 billion to 2 billion when the Board of Directors determines it to be in the best interest of the Company.

Common Stock Repurchase Program

The Company maintains stock repurchase programs that comply with Securities Exchange Act Rule 10b5-1 to allow for the orderly repurchase of Kroger stock, from time to time.  The Company made open market purchases totaling $1,151, $374 and $239 under these repurchase programs in fiscal 2007, 2006 and 2005, respectively.  In addition to these repurchase programs, in December 1999, the Company began a program to repurchase common stock to reduce dilution resulting from its employee stock option plans.  This program is solely funded by proceeds from stock option exercises, and the tax benefit.  The Company repurchased approximately $270, $259 and $13 under the stock option program during fiscal 2007, 2006 and 2005, respectively.

14.  BENEFIT PLANS

The Company administers non-contributory defined benefit retirement plans for substantially all non-union employees and some union-represented employees as determined by the terms and conditions of collective bargaining agreements.  These included several qualified pension plans (the “Qualified Plans”) and a non-qualified plan (the “Non-Qualified Plan”).  The Non-Qualified Plan pays benefits to any employee that earns in excess of the maximum allowed for the Qualified Plans by Section 415 of the Internal Revenue Code.  The Company only funds obligations under the Qualified Plans.  Funding for the pension plans is based on a review of the specific requirements and on evaluation of the assets and liabilities of each plan.

In addition to providing pension benefits, the Company provides certain health care benefits for retired employees.  The majority of the Company’s employees may become eligible for these benefits if they reach normal retirement age while employed by the Company.  Funding of retiree health care benefits occurs as claims or premiums are paid.

Effective February 3, 2007, the Company adopted the recognition and disclosure provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statement No. 87, 99, 106 and 132(R), which requires the recognition of the funded status of its retirement plans on the Consolidated Balance Sheet. Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized are required to be recorded as a component of Accumulated Other Comprehensive Income (“AOCI”). The Company currently uses a December 31 measurement date. Effective for 2008, the statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The Company will adopt the measurement date change in fiscal 2008.

Amounts recognized in AOCI as of February 2, 2008 consist of the following (pre-tax):

February 2, 2008	Pension Benefits		Other Benefits			Total
Unrecognized net actuarial loss (gain)	$	241	$	(38	)	$	203
Unrecognized prior service cost (credit)	6		(35		)	(29		)
Unrecognized transition obligation	1		—			1
Total liabilities	$	248	$	(73	)	$	175

Amounts in AOCI expected to be recognized as components of net periodic pension or postretirement benefit costs in 2008 are as follows (pre-tax):

February 2, 2008	Pension Benefits		Other Benefits			Total
Net actuarial loss	$	10	$	—		$	10
Prior service cost (credit)	2		(6		)	(4		)
Total liabilities	$	12	$	(6	)	$	6

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Other changes recognized in other comprehensive income in 2007 are as follows (pre-tax):

February 2, 2008	Pension Benefits			Other Benefits			Total
Incurred prior service cost	$	2		$	—		$	2
Incurred net actuarial gain	(156		)	(65		)	(221		)
Amortization of prior service cost	(3		)	6			3
Amortization of net actuarial loss	(37		)	—			(37		)
Total recognized in other comprehensive income	(194		)	(59		)	(253		)
Total recognized in net periodic benefit cost and other comprehensive income	$	(125	)	$	(36	)	$	(161	)

Information with respect to change in benefit obligation, change in plan assets, the funded status of the plans recorded in the Consolidated Balance Sheets, net amounts recognized at end of fiscal years, weighted average assumptions and components of net periodic benefit cost follow:

	Pension Benefits
	Qualified Plans						Non-Qualified Plan						Other Benefits
	2007			2006			2007			2006			2007			2006
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	$	2,419		$	2,284		$	113		$	105		$	373		$	356
Service cost	42			123			2			2			10			13
Interest cost	141			130			9			6			19			20
Plan participants’ contributions	1			—			—			—			9			11
Amendments	2			—			—			—			—			—
Actuarial (gain) loss	(143		)	(4		)	23			7			(65		)	4
Benefits paid	(120		)	(114		)	(8		)	(7		)	(26		)	(31		)
Benefit obligation at end of fiscal year	$	2,342		$	2,419		$	139		$	113		$	320		$	373
Change in plan assets:
Fair value of plan assets at beginning of fiscal year	$	2,098		$	1,814		$	—		$	—		$	—		$	—
Actual return on plan assets	200			248			—			—			—			—
Employer contributions	51			150			8			7			17			20
Plan participants’ contributions	1			—			—			—			9			11
Benefits paid	(120		)	(114		)	(8		)	(7		)	(26		)	(31		)
Fair value of plan assets at end of fiscal year	$	2,230		$	2,098		$	—		$	—		$	—		$	—
Funded status at end of fiscal year	$	(112	)	$	(321	)	$	(139	)	$	(113	)	$	(320	)	$	(373	)
Net asset (liability) recognized at end of fiscal year	$	(112	)	$	(321	)	$	(139	)	$	(113	)	$	(320	)	$	(373	)

As of February 2, 2008 and February 3, 2007, pension plan assets included no shares of The Kroger Co. common stock.

	Pension Benefits						Other Benefits
Weighted average assumptions	2007		2006		2005		2007		2006		2005
Discount rate – Benefit obligation	6.50	%	5.90	%	5.70	%	6.50	%	5.90	%	5.70	%
Discount rate – Net periodic benefit cost	5.90	%	5.70	%	5.75	%	5.90	%	5.70	%	5.75	%
Expected return on plan assets	8.50	%	8.50	%	8.50	%
Rate of compensation increase	3.56	%	3.50	%	3.50	%

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The Company’s discount rate assumption was intended to reflect the rate at which the pension benefits could be effectively settled.  It takes into account the timing and amount of benefits that would be available under the plan. The Company’s methodology for selecting the discount rate as of year-end 2007 was to match the plan’s cash flows to that of a yield curve that provides the equivalent yields on zero-coupon corporate bonds for each maturity.  Benefit cash flows due in a particular year can theoretically be “settled” by “investing” them in the zero-coupon bond that matures in the same year.  The discount rate is the single rate that produces the same present value of cash flows.  The selection of the 6.50% discount rate as of year-end 2007 represents the equivalent single rate under a broad-market AA yield curve constructed by an outside consultant. We utilized a discount rate of 5.90% for year-end 2006.  The 60 basis point increase in the discount rate decreased the projected pension benefit obligation as of February 2, 2008, by approximately $184.

To determine the expected return on pension plan assets, the Company contemplates current and forecasted plan asset allocations as well as historical and forecasted returns on various asset categories.  The average annual return on pension plan assets was 8.5% for the ten calendar years ended December 31, 2007, net of all fees and expenses.  Our actual return for the pension plan calendar year ending December 31, 2007, on that same basis, was 9.5%.  The Company utilized a pension return assumption of 8.5% in 2007, 2006 and 2005.

The Company uses the RP-2000 projected 2015 mortality table in calculating the pension obligation.

	Pension Benefits
	Qualified Plans									Non-Qualified Plan						Other Benefits
	2007			2006			2005			2007		2006		2005		2007			2006			2005
Components of net periodic benefit cost:
Service cost	$	42		$	123		$	118		$	2	$	2	$	1	$	10		$	13		$	12
Interest cost	141			130			113			9		6		6		19			20			19
Expected return on plan assets	(165		)	(152		)	(130		)	—		—		—		—			—			—
Amortization of:
Transition asset	—			(1		)	(1		)	—		—		—		—			—			—
Prior service cost	1			3			3			2		2		2		(6		)	(7		)	(7		)
Actuarial (gain) loss	31			41			24			6		2		2		—			—			—
Curtailment charge	—			5			—			—		—		—		—			—			—
Net periodic benefit cost	$	50		$	149		$	127		$	19	$	12	$	11	$	23		$	26		$	24

The following table provides the projected benefit obligation (“PBO”), accumulated benefit obligation (“ABO”) and the fair value of plan assets for all Company-sponsored pension plans.

	Qualified Plans				Non-Qualified Plan
	2007		2006		2007		2006
PBO at end of fiscal year	$	2,342	$	2,419	$	139	$	113
ABO at end of fiscal year	$	2,144	$	2,232	$	118	$	103
Fair value of plan assets at end of year	$	2,230	$	2,098	$	—	$	—

The following table provides information about the Company’s estimated future benefit payments.

	Pension Benefits		Other Benefits
2008	$	139	$	22
2009	$	141	$	24
2010	$	145	$	25
2011	$	151	$	26
2012	$	159	$	26
2013 - 2017	$	932	$	145

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The Company discontinued the accrual of additional benefits under the Company’s cash balance formula of the Consolidated Retirement Benefit Plan (the “Cash Balance Plan”) effective January 1, 2007. Participants in the Cash Balance Plan will continue to earn interest credits on their accrued benefit balance as of December 31, 2006, based on average Treasury rates, but will no longer accrue cash balance pay credits under the Cash Balance Plan after December 31, 2006. Projected pension benefit payments, as noted above, are lower than estimates in prior years as a result of the discontinuation of benefit accruals under the Cash Balance Plan. As a result of the decision to curtail benefits under the Cash Balance Plan, the Company recorded a charge totaling $5, pre-tax, in fiscal 2006, which represented the previously unrecognized prior service costs.

Net periodic benefit cost decreased in 2007 compared to 2006 and 2005 due to participants in the Cash Balance formula of the Consolidated Retirement Benefit Plan being moved to a 401(k) retirement savings account plan effective January 1, 2007. Participants under that formula continue to earn interest on prior contributions but no additional pay credits will be earned. The 401(k) retirement savings plan provides to eligible employees both matching contributions and automatic contributions from Kroger based on participant contributions, plan compensation, and length of service. The Company contributed and expensed $90 to employee 401(k) retirement savings accounts in 2007.

The following table provides information about the target and actual pension plan asset allocations.  Allocation percentages are shown as of December 31 for each respective year.  The pension plan measurement date is the December 31^st nearest the fiscal year-end.

	Target allocations		Actual allocations
	2007		2007		2006
Pension plan asset allocation, as of December 31:
Domestic equity securities	17.5	%	15.2	%	21.1	%
International equity securities	20.5		21.4		27.5
Investment grade debt securities	21.8		21.6		23.3
High yield debt securities	9.7		9.9		7.7
Private equity	5.0		5.9		4.9
Hedge funds	17.0		17.2		7.4
Real estate	1.4		1.7		1.4
Other	7.1		7.1		6.7
Total	100.0	%	100.0	%	100.0	%

Investment objectives, policies and strategies are set by the Pension Investment Committee (the “Committee”) appointed by the CEO.  The primary objectives include holding, protecting and investing the assets and distributing benefits to participants and beneficiaries of the pension plans.  Investment objectives have been established based on a comprehensive review of the capital markets and each underlying plan’s current and projected financial requirements.  The time horizon of the investment objectives is long-term in nature and plan assets are managed on a going-concern basis.

Investment objectives and guidelines specifically applicable to each manager of assets are established and reviewed annually.  Derivative instruments may be used for specified purposes.  Any use of derivative instruments for a purpose or in a manner not specifically authorized is prohibited, unless approved in advance by the Committee.

The current target allocations shown represent 2007 targets that were established in 2006.  To maintain actual asset allocations consistent with target allocations, assets are reallocated or rebalanced periodically.  In addition, cash flow from employer contributions and participant benefit payments is used to fund underweight asset classes and divest overweight asset classes, as appropriate.  The Company expects that cash flow will be sufficient to meet most rebalancing needs.  Although the Company is not required to make cash contributions to its Company-sponsored pension plans during fiscal 2008, contributions may be made if required under the Pension Protection Act to avoid any benefit restrictions.  The Company expects any voluntary contributions made during 2008 will reduce its minimum required contributions in future years.

58

The measurement date for post-retirement benefit obligations is the December 31^st nearest the fiscal year-end.  Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans.  The Company used a 8.50% initial health care cost trend rate and a 5.00% ultimate health care cost trend rate to determine its expense.  A one-percentage-point change in the assumed health care cost trend rates would have the following effects:

	1% Point Increase		1% Point Decrease
Effect on total of service and interest cost components	$	4	$	(3	)
Effect on postretirement benefit obligation	$	32	$	(28	)

On December 8, 2003, the President signed into law the Medicare Prescription Drug Improvement and Modernization Act of 2003.  The law provides for a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit at least actuarially equivalent to the benefit established by the law.  The Company has concluded that the plan is at least “actuarially equivalent” to the Medicare Part D plan for certain covered groups only and will be eligible for the subsidy for those groups.  The effect of the subsidy reduced the Company’s postretirement benefit obligation as of February 2, 2008 and February 3, 2007 by $4 and $6, respectively, and did not have a material effect on the Company’s net periodic benefit cost in either of those years.  The remaining groups’ benefits are not “actuarially equivalent” to the Medicare Part D plan, and the Company has made the decision to pay as secondary coverage to Medicare Part D for those groups.

The Company also contributes to various multi-employer pension plans based on obligations arising from most of its collective bargaining agreements.  These plans provide retirement benefits to participants based on their service to contributing employers.  The benefits are paid from assets held in trust for that purpose.  Trustees are appointed in equal number by employers and unions.  The trustees typically are responsible for determining the level of benefits to be provided to participants as well as for such matters as the investment of the assets and the administration of the plans.

The Company recognizes expense in connection with these plans as contributions are funded, in accordance with GAAP.  The Company made contributions to these plans, and recognized expense, of $207 in 2007, $204 in 2006, and $196 in 2005.

Based on the most recent information available to it, the Company believes that the present value of actuarial accrued liabilities in most or all of these multi-employer plans substantially exceeds the value of the assets held in trust to pay benefits.  Although underfunding can result in the imposition of excise taxes on contributing employers, factors such as increased contributions, increased asset values or future service benefit changes can reduce underfunding so that excise taxes are not triggered.  Moreover, if the Company were to exit certain markets or otherwise cease making contributions to these funds, the Company could trigger a substantial withdrawal liability.  Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP.

The Company also administers other defined contribution plans for eligible union and non-union employees.  The cost of these plans for 2007, 2006 and 2005 was $8.

15.RECENTLY ADOPTED ACCOUNTING STANDARDS

Effective February 4, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN No. 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The effect of adoption was to increase retained earnings by $4 and to decrease the Company’s accrual for uncertain tax positions by a corresponding amount.  Additionally, the Company decreased goodwill and accrual for uncertain tax positions by $72 to reflect the measurement under the rules of FIN No. 48 of an uncertain tax position related to previous business combinations.

As of adoption, the total amount of unrecognized tax benefits for uncertain tax positions, including positions affecting only the timing of tax benefits, was $694.  The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $119.

59

To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and classified as a component of income tax expense in the Company’s Condensed Consolidated Statements of Operations.  This accounting policy election is a continuation of the Company’s historical policy.  As of February 4, 2007, the amount of accrued interest and penalties included on the Condensed Consolidated Balance Sheets was $118.

The IRS concluded a field examination of the Company’s 2002 – 2004 U.S. tax returns during the third quarter of 2007.  An examination of the Company’s 1999 – 2001 U.S. tax returns was completed in 2005.  The Company contested two issues at the appellate level of the IRS.  One of the issues was resolved in the third quarter of 2007 and the Company anticipates that the remaining issue may be resolved within the next 12 months.  In the opinion of management, the ultimate disposition of the item noted above will not have a significant effect on the Company’s consolidated financial position, liquidity, or results of operations.  Additionally, The Company has a case in the U.S. Tax Court.  A decision on this case is not expected within the next 12 months.  In connection with this case, the Company has extended the statute of limitations on its tax years after 1991.

As a result of settlements with taxing authorities during the third quarter, the Company reclassified unrecognized tax benefits of $168 from other long-term liabilities to deferred income taxes and accrued taxes payable.  See Note 4 for further discussion of the adoption of FIN 48.

Effective February 3, 2007, the Company adopted the recognition and disclosure provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statement No. 87, 99, 106 and 132(R), which requires the recognition of the funded status of its retirement plans on the Consolidated Balance Sheet.  Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized are required to be recorded as a component of Accumulated Other Comprehensive Income (“AOCI”).  The Company currently uses a December 31 measurement date.  Effective for 2008, the statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position.  The Company will adopt the measurement date change in fiscal 2008.  See Note14 for further discussion of the adoption of SFAS 158.

Effective January 29, 2006, the Company adopted the provisions of SFAS No. 123(R), Share-Based Payment, using the modified-prospective method.  Under this method, the Company recognizes compensation expense for all share-based awards granted prior to, but not yet vested as of, January 29, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation.  For all share-based awards granted on or after January 29, 2006, the Company recognizes compensation expense based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).  See Note10 for further discussion of the adoption of SFAS 123(R).

16.RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurement.  SFAS No. 157 does not require any new fair value measurements.  SFAS No. 157 will become effective for the Company’s fiscal year beginning February 3, 2008.  The Company is evaluating the effect the implementation of SFAS No. 157 will have on its Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115.  SFAS No. 159 permits entities to make an irrevocable election to measure certain financial instruments and other assets and liabilities at fair value on an instrument-by-instrument basis.  Unrealized gains and losses on items for which the fair value option has been elected should be recognized into net earnings at each subsequent reporting date.  SFAS No. 159 will be become effective for the Company’s fiscal year beginning February 3, 2008.  The Company is currently evaluating the effect the adoption of SFAS No. 159 will have on its Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51.  SFAS No. 160 will require the consolidation of noncontrolling interests as a component of equity.  SFAS No. 160 will become effective for the Company’s fiscal year beginning February 1, 2009.  The Company is currently evaluating the effect the adoption of SFAS No. 160 will have on its Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS No. 141R), which replaces SFAS No. 141.  SFAS No. 141R further expands the definitions of a business and the fair value measurement and reporting in a business combination.  SFAS No. 141R will become effective for the Company’s fiscal year beginning February 1, 2009.  The Company is currently evaluating the effect the adoption of SFAS No. 141R will have on its Consolidated Financial Statements.

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In March 2007, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 requires enhanced disclosures on an entity’s derivative and hedging activities.  SFAS No. 161 will become effective for the Company’s fiscal year beginning February 1, 2009.  The Company is currently evaluating the effect the adoption of SFAS No. 161 will have on its Consolidated Financial Statements.

17.GUARANTOR SUBSIDIARIES

The Company’s outstanding public debt (the “Guaranteed Notes”) is jointly and severally, fully and unconditionally guaranteed by The Kroger Co. and some of its subsidiaries (the “Guarantor Subsidiaries”).  At February 2, 2008, a total of approximately $6,766 of Guaranteed Notes was outstanding.  The Guarantor Subsidiaries and non-guarantor subsidiaries are wholly-owned subsidiaries of The Kroger Co.  Separate financial statements of The Kroger Co. and each of the Guarantor Subsidiaries are not presented because the guarantees are full and unconditional and the Guarantor Subsidiaries are jointly and severally liable.  The Company believes that separate financial statements and other disclosures concerning the Guarantor Subsidiaries would not be material to investors.

The non-guaranteeing subsidiaries represent less than 3% on an individual and aggregate basis of consolidated assets, pre-tax earnings, cash flow, and equity.  Therefore, the non-guarantor subsidiaries’ information is not separately presented in the tables below.

There are no current restrictions on the ability of the Guarantor Subsidiaries to make payments under the guarantees referred to above, except, however, the obligations of each guarantor under its guarantee are limited to the maximum amount as will result in obligations of such guarantor under its guarantee not constituting a fraudulent conveyance or fraudulent transfer for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any similar Federal or state law (e.g., adequate capital to pay dividends under corporate laws).

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The following tables present summarized financial information as of February 2, 2008 and February 3, 2007 and for the three years ended February 2, 2008.

Condensed Consolidating

Balance Sheets

As of February 2, 2008

	The Kroger Co.		Guarantor Subsidiaries		Eliminations			Consolidated
Current assets
Cash and temporary cash investments	$	26	$	216	$	—		$	242
Deposits in-transit	76		600		—			676
Receivables	152		2,515		(1,881		)	786
Net inventories	420		4,435		—			4,855
Prepaid and other current assets	373		182		—			555
Total current assets	1,047		7,948		(1,881		)	7,114
Property, plant and equipment, net	1,684		10,814		—			12,498
Goodwill	56		2,088		—			2,144
Adjustment to reflect fair value interest rate hedges	11		—		—			11
Other assets	1,412		657		(1,537		)	532
Investment in and advances to subsidiaries	11,979		—		(11,979		)	—
Total Assets	$	16,189	$	21,507	$	(15,397	)	$	22,299
Current liabilities
Current portion of long-term debt including obligations under capital leases and financing obligations	$	1,592	$	—	$	—		$	1,592
Accounts payable	1,822		5,646		(3,418		)	4,050
Other current liabilities	—		3,045		—			3,045
Total current liabilities	3,414		8,691		(3,418		)	8,687
Long-term debt including obligations under capital leases and financing obligations
Face value long-term debt including obligations under capital leases and financing obligations	6,485		—		—			6,485
Adjustment to reflect fair value interest rate hedges	44		—		—			44
Long-term debt including obligations under capital leases and financing obligations	6,529		—		—			6,529
Other long-term liabilities	1,332		837		—			2,169
Total Liabilities	11,275		9,528		(3,418		)	17,385
Shareowners’ Equity	4,914		11,979		(11,979		)	4,914
Total Liabilities and Shareowners’ equity	$	16,189	$	21,507	$	(15,397	)	$	22,299

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Condensed Consolidating

Balance Sheets

As of February 3, 2007

	The Kroger Co.		Guarantor Subsidiaries		Eliminations			Consolidated
Current assets
Cash and temporary cash investments	$	25	$	164	$	—		$	189
Deposits in-transit	69		545		—			614
Receivables	168		1,982		(1,372		)	778
Net inventories	406		4,203		—			4,609
Prepaid and other current assets	371		194		—			565
Total current assets	1,039		7,088		(1,372		)	6,755
Property, plant and equipment, net	1,429		10,350		—			11,779
Goodwill	56		2,136		—			2,192
Other assets	1,184		612		(1,307		)	489
Investment in and advances to subsidiaries	11,510		—		(11,510		)	—
Total Assets	$	15,218	$	20,186	$	(14,189	)	$	21,215
Current liabilities
Current portion of long-term debt including obligations under capital leases and financing obligations	$	906	$	—	$	—		$	906
Accounts payable	1,614		4,869		(2,679		)	3,804
Other current liabilities	—		2,871		—			2,871
Total current liabilities	2,520		7,740		(2,679		)	7,581
Long-term debt including obligations under capital leases and financing obligations
Face value long-term debt including obligations under capital leases and financing obligations	6,136		—		—			6,136
Adjustment to reflect fair value interest rate hedges	18		—		—			18
Long-term debt including obligations under capital leases and financing obligations	6,154		—		—			6,154
Other long-term liabilities	1,621		936		—			2,557
Total Liabilities	10,295		8,676		(2,679		)	16,292
Shareowners’ Equity	4,923		11,510		(11,510		)	4,923
Total Liabilities and Shareowners’ equity	$	15,218	$	20,186	$	(14,189	)	$	21,215

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Condensed Consolidating

Statements of Operations

For the Year ended February 2, 2008

	The Kroger Co.		Guarantor Subsidiaries		Eliminations			Consolidated
Sales	$	9,022	$	62,482	$	(1,269	)	$	70,235
Merchandise costs, including warehousing and transportation	6,877		48,171		(1,269		)	53,779
Operating, general and administrative	1,666		10,489		—			12,155
Rent	125		519		—			644
Depreciation and amortization	148		1,208		—			1,356
Operating profit	206		2,095		—			2,301
Interest expense	468		6		—			474
Equity in earnings of subsidiaries	1,511		—		(1,511		)	—
Earnings (loss) before tax expense	1,249		2,089		(1,511		)	1,827
Tax expense	68		578		—			646
Net earnings (loss)	$	1,181	$	1,511	$	(1,511	)	$	1,181

Condensed Consolidating

Statements of Operations

For the Year ended February 3, 2007

	The Kroger Co.		Guarantor Subsidiaries		Eliminations			Consolidated
Sales	$	8,731	$	58,383	$	(1,003	)	$	66,111
Merchandise costs, including warehousing and transportation	6,630		44,488		(1,003		)	50,115
Operating, general and administrative	1,697		10,142		—			11,839
Rent	132		517		—			649
Depreciation and amortization	136		1,136		—			1,272
Operating profit	136		2,100		—			2,236
Interest expense	480		8		—			488
Equity in earnings of subsidiaries	1,843		—		(1,843		)	—
Earnings before income tax expense	1,499		2,092		(1,843		)	1,748
Income tax expense	384		249		—			633
Net earnings	$	1,115	$	1,843	$	(1,843	)	$	1,115

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Condensed Consolidating

Statements of Operations

For the Year ended January 28, 2006

	The Kroger Co.			Guarantor Subsidiaries		Eliminations			Consolidated
Sales	$	8,693		$	52,822	$	(962	)	$	60,553
Merchandise costs, including warehousing and transportation	6,502			40,021		(958		)	45,565
Operating, general and administrative	1,657			9,368		2			11,027
Rent	165			502		(6		)	661
Depreciation and amortization	139			1,126		—			1,265
Operating profit	230			1,805		—			2,035
Interest expense	498			12		—			510
Equity in earnings of subsidiaries	1,164			—		(1,164		)	—
Earnings before income tax expense	896			1,793		(1,164		)	1,525
Income tax expense (benefit)	(62		)	629		—			567
Net earnings	$	958		$	1,164	$	(1,164	)	$	958

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Condensed Consolidating

Statements of Cash Flows

For the Year ended February 2, 2008

	The Kroger Co.			Guarantor Subsidiaries			Consolidated
Net cash (used) provided by operating activities	$	(433	)	$	3,014		$	2,581
Cash flows from investing activities:
Payments for capital expenditures	(210		)	(1,916		)	(2,126		)
Other	(29		)	(63		)	(92		)
Net cash used by investing activities	(239		)	(1,979		)	(2,218		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	1,590			—			1,590
Payments on long-term debt	(560		)	—			(560		)
Proceeds from issuance of capital stock	224			—			224
Treasury stock purchases	(1,421		)	—			(1,421		)
Dividends paid	(202		)	—			(202		)
Other	—			59			59
Net change in advances to subsidiaries	1,042			(1,042		)	—
Net cash (used) provided by financing activities	673			(983		)	(310		)
Net decrease in cash and temporary cash investments	1			52			53
Cash and temporary cash investments:
Beginning of year	25			164			189
End of year	$	26		$	216		$	242

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Condensed Consolidating

Statements of Cash Flows

For the Year ended February 3, 2007

	The Kroger Co.			Guarantor Subsidiaries			Consolidated
Net cash provided by operating activities	$	152		$	2,199		$	2,351
Cash flows from investing activities:
Payments for capital expenditures	(143		)	(1,540		)	(1,683		)
Other	56			40			96
Net cash used by investing activities	(87		)	(1,500		)	(1,587		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	362			—			362
Payments on long-term debt	(556		)	—			(556		)
Proceeds from issuance of capital stock	168			—			168
Treasury stock purchases	(633		)	—			(633		)
Dividends paid	(140		)	—			(140		)
Other	18			(4		)	14
Net change in advances to subsidiaries	702			(702		)	—
Net cash used by financing activities	(79		)	(706		)	(785		)
Net decrease in cash and temporary cash investments	(14		)	(7		)	(21		)
Cash and temporary cash investments:
Beginning of year	39			171			210
End of year	$	25		$	164		$	189

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Condensed Consolidating

Statements of Cash Flows

For the Year ended January 28, 2006

	The Kroger Co.			Guarantor Subsidiaries			Consolidated
Net cash provided by operating activities	$	1,171		$	1,021		$	2,192
Cash flows from investing activities:
Payments fro capital expenditures	(188		)	(1,118		)	(1,306		)
Other	11			16			27
Net cash used by investing activities	(177		)	(1,102		)	(1,279		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	14			—			14
Payments on long-term debt	(764		)	(33		)	(797		)
Proceeds from issuance of capital stock	78			—			78
Treasury stock purchases	(252		)	—			(252		)
Other	77			33			(110		)
Net change in advances to subsidiaries	(140		)	140			—
Net cash provided (used) by financing activities	(987		)	140			(847		)
Net increase in cash and temporary cash investments	7			59			66
Cash and temporary cash investments:
Beginning of year	32			112			144
End of year	$	39		$	171		$	210

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18.QUARTERLY DATA (UNAUDITED)

	Quarter
2007	First (16 Weeks)		Second (12 Weeks)		Third (12 Weeks)		Fourth (12 Weeks)		Total Year (52 Weeks)
Sales	$	20,726	$	16,139	$	16,135	$	17,235	$	70,235
Net earnings	$	337	$	267	$	254	$	323	$	1,181
Net earnings per basic common share	$	0.48	$	0.38	$	0.37	$	0.48	$	1.71
Average number of shares used in basic calculation	706		702		678		668		690
Net earnings per diluted common share	$	0.47	$	0.38	$	0.37	$	0.48	$	1.69
Average number of shares used in diluted calculation	715		709		685		676		698

	Quarter
2006	First (16 Weeks)		Second (12 Weeks)		Third (12 Weeks)		Fourth (13 Weeks)		Total Year (53 Weeks)
Sales	$	19,415	$	15,138	$	14,699	$	16,859	$	66,111
Net earnings	$	306	$	209	$	215	$	385	$	1,115
Net earnings per basic common share	$	0.42	$	0.29	$	0.30	$	0.55	$	1.56
Average number of shares used in basic calculation	722		719		712		706		715
Net earnings per diluted common share	$	0.42	$	0.29	$	0.30	$	0.54	$	1.54
Average number of shares used in diluted calculation	729		725		720		715		723

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

As of February 2, 2008, the Chief Executive Officer and the Chief Financial Officer, together with a disclosure review committee appointed by the Chief Executive Officer, evaluated Kroger’s disclosure controls and procedures.  Based on that evaluation, Kroger’s Chief Executive Officer and Chief Financial Officer concluded that Kroger’s disclosure controls and procedures were effective as of February 2, 2008.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There was no change in Kroger’s internal control over financial reporting during the fiscal quarter ended February 2, 2008, that has materially affected, or is reasonably likely to materially affect, Kroger’s internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of the Company 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, issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, our management has concluded that the Company’s internal control over financial reporting was effective as of February 2, 2008.

The effectiveness of the Company’s internal control over financial reporting as of February 2, 2008, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which can be found in Item 8 of this Form 10-K.

ITEM 9B. OTHER INFORMATION.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this Item not otherwise set forth below is set forth under the headings Election of Directors and Information Concerning the Board of Directors in the definitive proxy statement to be filed by the Company with the Securities and Exchange Commission and is hereby incorporated by reference into this Form 10-K.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely on its review of the copies of all Section 16(a) forms received by the Company, or written representations from certain persons that no Forms 5 were required by those persons, the Company believes that during fiscal year 2007 all filing requirements applicable to its officers, directors and 10% beneficial owners were timely satisfied, with three exceptions.  M. Elizabeth Van Oflen filed a Form 4 reporting a 2006 restricted stock award that was not reported on a prior Form 4, Don McGeorge filed a Form 5 reporting his wife’s sale of a fractional share from her Company 401(k) account that was not reported on a prior Form 4, and Susan Phillips filed a Form 5 reporting shares purchased through dividend reinvestment in 2007 that was not reported on a prior Form 4.

EXECUTIVE OFFICERS OF THE COMPANY

The following is a list of the names and ages of the executive officers and the positions held by each such person or those chosen to become executive officers as of March 28, 2008.  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
Donald E. Becker	59	Mr. Becker was elected Executive Vice President on September 16, 2004 and Senior Vice President on January 26, 2000. Prior to his election, Mr. Becker was appointed President of the Company’s Central Marketing Area in 1996. Before this, Mr. Becker served in a number of key management positions in the Company’s Cincinnati/Dayton Marketing Area, including Vice President of Operations and Vice President of Merchandising. He joined the Company in 1969.
William T. Boehm	60	Mr. Boehm was elected Senior Vice President and President, Manufacturing on May 6, 2004. Prior to that he was elected Group Vice President, Logistics effective April 29, 2001. Mr. Boehm joined the Company in 1981 as Director of Economic Research. He was promoted to Vice President, Corporate Planning and Research in 1986. He was named Vice President Grocery Procurement in 1989 and Vice President of Logistics in 1994.
David B. Dillon	57	Mr. Dillon was elected Chairman of the Board on June 24, 2004 and Chief Executive Officer effective June 26, 2003. Prior to this, he was elected President and Chief Operating Officer effective January 26, 2000. Upon the merger with Fred Meyer, Inc., he was named President of the combined Company. Prior thereto, Mr. Dillon was elected President and Chief Operating Officer of Kroger effective June 18, 1995. Prior to this he was elected Executive Vice President on September 13, 1990, Chairman of the Board of Dillon Companies, Inc. on September 8, 1992, and President of Dillon Companies, Inc. on April 22, 1986.
Kevin M. Dougherty	55	Mr. Dougherty was elected Group Vice President, Logistics effective May 6, 2004. Mr. Dougherty joined the Company as Vice President, Supply Chain Operations in 2001. Before joining the Company, he maintained an independent consulting practice focusing on logistics and operational performance.

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Joseph A. Grieshaber, Jr.	50	Mr. Grieshaber was elected Group Vice President, Perishables Merchandising and Procurement, effective August 4, 2003. Prior to this, he held a variety of management positions within the Company, most recently serving as Vice President of Merchandising for the Company’s Great Lakes Marketing Area. Mr. Grieshaber joined the Company in 1983.
Paul W. Heldman	56	Mr. Heldman was elected Executive Vice President effective May 5, 2006, Senior Vice President effective October 5, 1997, Secretary on May 21, 1992, and Vice President and General Counsel effective June 18, 1989. Prior to his election, he held various positions in the Company’s Law Department. Mr. Heldman joined the Company in 1982.
Scott M. Henderson	52	Mr. Henderson was elected Vice President effective June 26, 2003 and Treasurer effective January 6, 2002. Mr. Henderson joined the Company in 1981 as Manager of Financial Reporting. He held a variety of management positions and was promoted to Vice President of Planning in February 2000.
Christopher T. Hjelm	46	Mr. Hjelm joined the Company on August 28, 2005 as Senior Vice President and Chief Information Officer. From February 2005 to July 2005, he was Chief Information Officer of Travel Distribution Services for Cendant Corporation. From July 2003 to November 2004 Mr. Hjelm served as Chief Technology Officer for Orbitz LLC, which was acquired by Cendant Corporation in November 2004. Mr. Hjelm served as Senior Vice President for Technology at eBay Inc. from March 2002 to June 2003, and served as Executive Vice President for Broadband Network Services for At Home Company from June 2001 to February 2002. From January 2000 to June 2001, Mr. Hjelm served as Chairman, President and Chief Executive Officer of ZOHO Corporation. Prior to that, he held various key roles for 14 years with Federal Express Corporation, including that of Senior Vice President and Chief Information Officer.
Carver L. Johnson	58	Mr. Johnson was elected Chief Diversity Officer effective June 22, 2006. Prior to his election, Mr. Johnson served as Group Vice President of Management Information Systems. Prior to joining the Company in December 1999, he served as Vice President and Chief Information Officer of Gymboree. From 1993 to 1998, Mr. Johnson was Senior Systems Director of Corporate Services for Sears, Roebuck & Co. He previously held management positions with Jamesway Corp., Linens ‘n Things, and Pay ‘n Save Stores, Inc.
Lynn Marmer	55	Ms. Marmer was elected Group Vice President, Corporate Affairs effective January 19, 1998. Prior to her election, Ms. Marmer was an attorney in the Company’s Law Department. Ms. Marmer joined the Company in 1997. Before joining the Company she was a partner in the law firm of Dinsmore & Shohl.
Don W. McGeorge	53	Mr. McGeorge was elected President and Chief Operating Officer effective June 26, 2003. Prior to that, he was elected Executive Vice President effective January 26, 2000 and Senior Vice President effective August 10, 1997. Before his election, Mr. McGeorge was President of the Company’s Columbus Marketing Area effective December 29, 1996; and prior thereto President of the Company’s Michigan Marketing Area effective June 20, 1993. Before this he served in a number of key management positions with the Company, including Vice President of Merchandising of the Company’s Nashville Marketing Area. Mr. McGeorge joined the Company in 1977.

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W. Rodney McMullen	47	Mr. McMullen was elected Vice Chairman effective June 26, 2003. Prior to that he was elected Executive Vice President, Strategy, Planning and Finance effective January 26, 2000, Executive Vice President and Chief Financial Officer effective May 20, 1999, Senior Vice President effective October 5, 1997, and Group Vice President and Chief Financial Officer effective June 18, 1995. Before that he was appointed Vice President, Control and Financial Services on March 4, 1993, and Vice President, Planning and Capital Management effective December 31, 1989. Mr. McMullen joined the Company in 1978 as a part-time stock clerk.
M. Marnette Perry	56	Ms. Perry was elected Senior Vice President effective July 20, 2003. Prior to that she was elected Group Vice President of Perishables Merchandising and Procurement on March 3, 2003. Prior to this she held a variety of significant positions with the Company, including President of the Company’s Michigan Marketing Area, and President of the Company’s Columbus Marketing Area. She joined the Company in 1972.
J. Michael Schlotman	50	Mr. Schlotman was elected Senior Vice President effective June 26, 2003, and Group Vice President and Chief Financial Officer effective January 26, 2000. Prior to that he was elected Vice President and Corporate Controller in 1995, and served in various positions in corporate accounting since joining the Company in 1985.
Paul J. Scutt	59	Mr. Scutt was elected Senior Vice President of Retail Operations on September 16, 2004 and he was elected Group Vice President of Retail Operations effective May 21, 2002. He has held a number of significant positions with the Company including Regional Vice President of the Company’s Hutchinson operations, and most recently as President of the Company’s Central Marketing Area.
M. Elizabeth Van Oflen	50	Ms. Van Oflen was elected Vice President and Controller on April 11, 2003. Prior to her election, she held various positions in the Company’s Finance and Tax Departments. Ms. Van Oflen joined the Company in 1982.
Della Wall	56	Ms. Wall was elected Group Vice President, Human Resources effective April 9, 2004. Prior to her election, she held various key positions in the Company’s human resources department, manufacturing group and drug store division, most recently serving as Vice President of Human Resources. Ms. Wall joined the Company in 1971.
R. Pete Williams	53	Mr. Williams was elected Senior Vice President on August 19, 2007. Prior to his election, Mr. Williams held a variety of key management positions with the Company, including President of the Company’s Mid-Atlantic Marketing Area, Vice President of Operations, Vice President of Merchandising, and Director of Labor Relations. He joined the Company in 1977.

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ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is set forth in the sections entitled Compensation Discussion and Analysis, Compensation Committee Report, and Executive Compensation in the definitive proxy statement to be filed by the Company with the Securities and Exchange Commission and is hereby incorporated by reference into this Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table provides information regarding shares outstanding and available for issuance under the Company’s existing equity compensation plans.

Equity Compensation Plan Information

	(a)	(b)		(c)
				Number of securities
				remaining for future
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		issuance under equity compensation plans excluding securities reflected in column (a)
Equity compensation plans approved by security holders	44,781,032	$	20.94	10,868,150
Equity compensation plans not approved by security holders	—	$	—	—
Total	44,781,032	$	20.94	10,868,150

The remainder of the information required by this Item is set forth in the Beneficial Ownership of Common Stock table in the definitive proxy statement to be filed by the Company with the Securities and Exchange Commission and is hereby incorporated by reference into this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

This information required by this Item is set forth in the sections entitled Related Person Transactions and Information Concerning the Board of Directors-Independence in the definitive proxy statement to be filed by the Company with the Securities and Exchange Commission and is hereby incorporated by reference into this Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required by this Item is set forth in the section entitled Selection of Auditors – Disclosure of Auditor Fees in the definitive proxy statement to be filed by the Company with the Securities and Exchange Commission and is hereby incorporated by reference into this Form 10-K.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a)1.	Financial Statements:
	Report of Independent Registered Public Accounting Firm
	Consolidated Balance Sheets as of February 2, 2008 and February 3, 2007
	Consolidated Statements of Operations for the years ended February 2, 2008, February 3, 2007 and January 28, 2006
	Consolidated Statements of Cash Flows for the years ended February 2, 2008, February 3, 2007 and January 28, 2006
	Consolidated Statement of Changes in Shareowners Equity
	Notes to Consolidated Financial Statements
(a)2.	Financial Statement Schedules:
	There are no Financial Statement Schedules included with this filing for the reason that they are not applicable or are not required or the information is included in the financial statements or notes thereto.
(a)3.(b)	Exhibits
3.1	Amended Articles of Incorporation are hereby incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 26, 2007, filed with the SEC on July 3, 2007.
3.2	The Company’s regulations are hereby incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 20, 2006, filed with the SEC on June 29, 2006.
4.1	Instruments defining the rights of holders of long-term debt of the Company and its subsidiaries are not filed as Exhibits because the amount of debt under each instrument is less than 10% of the consolidated assets of the Company.  The Company undertakes to file these instruments with the Commission upon request.
10.1*	Material Contracts - Non-Employee Directors’ Deferred Compensation Plan. Incorporated by reference to Appendix J to Exhibit 99.1 of Fred Meyer, Inc.’s Current Report on Form 8-K dated September 9, 1997, SEC File No. 1-133339.
10.2*	The Kroger Co. Deferred Compensation Plan for Independent Directors.  Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-K for fiscal year ended January 29, 2005.
10.3*	The Kroger Co. Executive Deferred Compensation Plan.  Incorporated by reference to Exhibit 10.4 to the Company’s Form 10-K for fiscal year ended January 29, 2005.
10.4*	The Kroger Co. 401(k) Retirement Savings Account Restoration Plan. Incorporated by reference to Exhibit 10.4 of The Kroger Co.’s Form 10-K for the fiscal year ended February 3, 2007.
10.5*	Dillon Companies, Inc. Excess Benefit Pension Plan. Incorporated by reference to Exhibit 10.5 of The Kroger Co.’s Form 10-K for the fiscal year ended February 3, 2007.
10.6*	The Kroger Co. Supplemental Retirement Plans for Certain Benefit Plan Participants. Incorporated by reference to Exhibit 10.6 of The Kroger Co.’s Form 10-K for the fiscal year ended February 3, 2007.
10.7*	2006 Long-Term Bonus Plan. Incorporated by reference to Exhibit 99.1 of The Kroger Co.’s Current Report on Form 8-K filed with the SEC on December 14, 2005.
10.8*	The Kroger Co. 2005 Long-Term Incentive Plan.  Incorporated by reference to Exhibit 4.2 of The Kroger Co.’s Form S-8 filed with the SEC on June 23, 2005.
10.9*	Form of Restricted Stock Grant Agreement under Long-Term Incentive Plans. Incorporated by reference to Exhibit 10.9 of The Kroger Co.’s Form 10-K for the fiscal year ended February 3, 2007.

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10.10*	Form of Non-Qualified Stock Option Grant Agreement under Long-Term Incentive Plans. Incorporated by reference to Exhibit 10.10 of The Kroger Co.’s Form 10-K for the fiscal year ended February 3, 2007.
10.11	Five Year Credit Agreement dated as of November 15, 2006, incorporated by reference to Exhibit 99.1 of The Kroger Co.’s Current Report on Form 8-K filed with the SEC on November 20, 2006.
10.12	4(2) Commercial Paper Program Dealer Agreement between The Kroger Co., as Issuer and Banc of America Securities, LLC, as Dealer dated as of December 3, 2003, as amended on July 23, 2004, incorporated by reference to Exhibit 10.15 of The Kroger Co.’s Annual Report on Form 10-K for the fiscal year ended January 29, 2005.
10.13	4(2) Commercial Paper Program Dealer Agreement between The Kroger Co., as Issuer and Citigroup Global Markets Inc., as Dealer dated as of December 3, 2003, as amended on June 9, 2004, incorporated by reference to Exhibit 10.16 of The Kroger Co.’s Annual Report on Form 10-K for the fiscal year ended January 29, 2005.
10.14*	Disclosure of compensation of non-employee directors. Incorporated by reference to Item 2.02 of The Kroger Co.’s Form 8-K dated December 10, 2004.
10.15*	The Kroger Co. Employee Protection Plan dated December 13, 2007.
10.16*	2008 Long-Term Bonus Plan.
12.1	Statement of Computation of Ratio of Earnings to Fixed Charges.
21.1	Subsidiaries of the Registrant.
23.1	Consent of Independent Registered Public Accounting Firm.
24.1	Powers of Attorney.
31.1	Rule 13a-14(a)/15d-14(a) Certification.
31.2	Rule 13a-14(a)/15d-14(a) Certification.
32.1	Section 1350 Certifications

*  Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	THE KROGER CO.
Dated: April 1, 2008	By	(*David B. Dillon)
	David B. Dillon
	Chief Executive Officer
	(principal executive officer)
Dated: April 1, 2008	By	(*J. Michael Schlotman)
	J. Michael Schlotman
	Chief Financial Officer
	(principal financial officer)
Dated: April 1, 2008	By	(*M. Elizabeth Van Oflen)
	M. Elizabeth Van Oflen
	Vice President & Controller
	(principal accounting officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on the 1st of April 2008.

(*Reuben V. Anderson)	Director
Reuben V. Anderson
(*Robert D. Beyer)	Director
Robert D. Beyer
(*John L. Clendenin)	Director
John L Clendenin
(*David B. Dillon)	Chairman, Chief Executive Officer and Director
David B. Dillon
(*Susan J. Kropf)	Director
Susan J. Kropf
(*John T. LaMacchia)	Director
John T. LaMacchia
(*David B. Lewis)	Director
David B. Lewis
(*Don W. McGeorge)	President, Chief Operating Officer, and Director
Don W. McGeorge
(*W. Rodney McMullen)	Vice Chairman and Director
W. Rodney McMullen
(*Jorge P. Montoya)	Director
Jorge P. Montoya
(*Clyde R. Moore)	Director
Clyde R. Moore

77

(*Katherine D. Ortega)	Director
Katherine D. Ortega
(*Susan M. Phillips)	Director
Susan M. Phillips
(*Steven R. Rogel)	Director
Steven R. Rogel
(*James A. Runde)	Director
James A. Runde
(*Ronald L. Sargent)	Director
Ronald L. Sargent
(*Bobby S. Shackouls)	Director
Bobby S. Shackouls

By:	(*Bruce M. Gack)
	Bruce M. Gack
	Attorney-in-fact

78

EXHIBIT INDEX

Exhibit No.
3.1	Amended Articles of Incorporation are hereby incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 20, 2006, filed with the SEC on June 29, 2006.
3.2	The Company’s regulations are hereby incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 26, 2007, filed with the SEC on July 3, 2007.
4.1	Instruments defining the rights of holders of long-term debt of the Company and its subsidiaries are not filed as Exhibits because the amount of debt under each instrument is less than 10% of the consolidated assets of the Company.  The Company undertakes to file these instruments with the Commission upon request.
10.1*	Material Contracts - Non-Employee Directors’ Deferred Compensation Plan. Incorporated by reference to Appendix J to Exhibit 99.1 of Fred Meyer, Inc.’s Current Report on Form 8-K dated September 9, 1997, SEC File No. 1-133339.
10.2*	The Kroger Co. Deferred Compensation Plan for Independent Directors.  Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-K for fiscal year ended January 29, 2005.
10.3*	The Kroger Co. Executive Deferred Compensation Plan.  Incorporated by reference to Exhibit 10.4 to the Company’s Form 10-K for fiscal year ended January 29, 2005.
10.4*	The Kroger Co. 401(k) Retirement Savings Account Restoration Plan. Incorporated by reference to Exhibit 10.4 of The Kroger Co.’s Form 10-K for the fiscal year ended February 3, 2007.
10.5*	Dillon Companies, Inc. Excess Benefit Pension Plan. Incorporated by reference to Exhibit 10.5 of The Kroger Co.’s Form 10-K for the fiscal year ended February 3, 2007.
10.6*	The Kroger Co. Supplemental Retirement Plans for Certain Benefit Plan Participants. Incorporated by reference to Exhibit 10.6 of The Kroger Co.’s Form 10-K for the fiscal year ended February 3, 2007.
10.7*	2006 Long Term Bonus Plan. Incorporated by reference to Exhibit 99.1 of The Kroger Co.’s Current Report on Form 8-K filed with the SEC on December 14, 2005.
10.8*	The Kroger Co. 2005 Long-Term Incentive Plan.  Incorporated by reference to Exhibit 4.2 of The Kroger Co.’s Form S-8 filed with the SEC on June 23, 2005.
10.9*	Form of Restricted Stock Grant Agreement under Long-Term Incentive Plans. Incorporated by reference to Exhibit 10.9 of The Kroger Co.’s Form 10-K for the fiscal year ended February 3, 2007.
10.10*	Form of Non-Qualified Stock Option Grant Agreement under Long-Term Incentive Plans. Incorporated by reference to Exhibit 10.10 of The Kroger Co.’s Form 10-K for the fiscal year ended February 3, 2007.
10.11	Five Year Credit Agreement dated as of November 15, 2006, incorporated by reference to Exhibit 99.1 of The Kroger Co.’s Current Report on Form 8-K filed with the SEC on November 20, 2006.
10.12	4(2) Commercial Paper Program Dealer Agreement between The Kroger Co., as Issuer and Banc of America Securities, LLC, as Dealer dated as of December 3, 2003, as amended on July 23, 2004, incorporated by reference to Exhibit 10.15 of The Kroger Co.’s Annual Report on Form 10-K for the fiscal year ended January 29, 2005.
10.13	4(2) Commercial Paper Program Dealer Agreement between The Kroger Co., as Issuer and Citigroup Global Markets Inc., as Dealer dated as of December 3, 2003, as amended on June 9, 2004, incorporated by reference to Exhibit 10.16 of The Kroger Co.’s Annual Report on Form 10-K for the fiscal year ended January 29, 2005.

79

10.14*	Disclosure of compensation of non-employee directors. Incorporated by reference to Item 2.02 of The Kroger Co.’s Form 8-K dated December 10, 2004.
10.15*	The Kroger Co. Employee Protection Plan.
10.16*	2008 Long-Term Bonus Plan.
12.1	Statement of Computation of Ratio of Earnings to Fixed Charges.
21.1	Subsidiaries of the Registrant.
23.1	Consent of Independent Registered Public Accounting Firm.
24.1	Powers of Attorney.
31.1	Rule 13a-14(a)/15d-14(a) Certification.
31.2	Rule 13a-14(a)/15d-14(a) Certification.
32.1	Section 1350 Certifications

*  Management contract or compensatory plan or arrangement.

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EX-10.15

EXHIBIT 10.15

THE KROGER CO.

EMPLOYEE PROTECTION PLAN

(as amended and restated effective December 13, 2007)

The Kroger Co. Employee Protection Plan, as set forth herein, is intended to assist The Kroger Co. and its affiliates in attracting and retaining key employees and enhance the long-term stability of The Kroger Co.’s work environment by providing for the protection of covered employees in connection with a Change in Control as set forth herein.

ARTICLE I

DEFINITIONS

1.1“Additional Vacation and Bonus Amount” means one-twelfth of the sum of (a) the amount of vacation pay the Eligible Employee accrues on an annual basis under the vacation plan or policy covering the Eligible Employee immediately prior to a Change in Control and (b) 70% of the Eligible Employee’s Bonus.

1.2“Affiliate” means a corporation, partnership, business trust, limited liability company, or other form of business organization at least 50% of the total combined voting power of all classes of stock or other equity interests of which is owned by Kroger, either directly or indirectly.

1.3“Annual Base Salary” means an Eligible Employee’s annual base salary in effect immediately preceding a Change in Control (or if greater, immediately preceding the Eligible Employee’s Termination of Employment).

1.4“Annual Pay” means the sum of an Eligible Employee’s Annual Base Salary plus 70% of the Eligible Employee’s Bonus.

1.5“Board” means the Board of Directors of Kroger.

1.6“Bonus” means, the Eligible Employee’s  annual bonus potential amount for the year including the Eligible Employee’s Termination of Employment, or, if higher, the average of the annual bonuses paid, or payable (including any bonus or portion thereof which has been earned but deferred) to the Eligible Employee by the Company in respect of the three fiscal years (or such shorter period during which the Eligible Employee has been employed by the Company) immediately preceding the Change in Control.

1.7“Cause” means an Eligible Employee’s:

(a)failure to substantially perform the Eligible Employee’s duties (other than by reason of disability) with respect to Kroger or an Affiliate,

(b)engaging in conduct injurious to Kroger or an Affiliate,

(c)breach of fiduciary duty to Kroger or an Affiliate,

(d)dishonesty, fraud, alcohol or illegal drug abuse, or misconduct with respect to the business or affairs of Kroger or an Affiliate,

(e)willful violation of the policies of Kroger or an Affiliate after receiving written notice of such violation, or

(f)conviction of a felony or crime involving moral turpitude.

All determinations of Cause hereunder shall be made by [the Plan Administrator] and shall be binding for all purposes hereunder.

1.8“Change in Control” means, and shall be deemed to have occurred, if:

(a)any Person, excluding employee benefit plans of Kroger or an Affiliate, is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of Company securities representing 20% or more of the combined voting power of Kroger’s then outstanding securities;

(b)Kroger consummates a merger, consolidation, share exchange, division or other reorganization or transaction of Kroger (a “Fundamental Transaction”) with any other corporation, other than a Fundamental Transaction that results in the voting securities of Kroger outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined Voting Power immediately after such Fundamental Transaction of (i) Kroger’s outstanding securities, (ii) the surviving entity’s outstanding securities, or (iii) in the case of a division, the outstanding securities of each entity resulting from the division;

(c)the shareholders of Kroger approve a plan of complete liquidation or winding up of Kroger or an agreement for the sale or disposition (in one transaction or a series of transactions) of all or substantially all of Kroger’s assets; or

(d)during any period of 24 consecutive months, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by Kroger’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period or whose appointment, election or nomination was previously so approved or recommended) cease for any reason to constitute at least a majority of the Board.

1.9“Code” means the Internal Revenue Code of 1986, as amended.

2

1.10“Company” means Kroger and its Affiliates.

1.11“Coverage Period” means the period commencing on the date on which a Change in Control occurs and ending on the second anniversary thereof.

1.12“Eligible Employee” means any employee of the Company who has, prior to a Change in Control, (a) completed at least one Year of Service and (b) as of the date of a Change in Control, is employed (i)  as an exempt employee under the Fair Labor Standards Act, or (ii) in a non-union administrative or technical support personnel position in a corporate, division, manufacturing, field, or logistics office, and is a non-exempt employee under the Fair Labor Standards Act

1.13“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

1.14“Good Reason” means:

(a)with respect to an Eligible Employee, and, in all cases without the written consent of the Eligible Employee:

(i)A material diminution in the Eligible Employee’s base compensation;

(ii)A material diminution in the Eligible Employee’s authority, duties, or responsibilities

(iii)A material change in the geographic location at which the Eligible Employee must perform services (for purposes of this Plan, this shall be deemed to occur if and only if the Eligible Employee’s principal place of work is relocated more than 50 miles from the Eligible Employee’s principal place of work immediately before a Change in Control); or

(iv)Any other action or inaction that constitutes a material breach by Kroger of Section 2.1 hereof.

(b)An Eligible Employee shall not have Good Reason for a Termination of Employment unless:

(i)the condition constituting Good Reason occurs during the Coverage Period,

(ii)the Eligible Employee provides written notice to the Plan Administrator of the existence of the condition constituting Good Reason within 90 days of the initial existence of the condition constituting Good Reason and the Company is given 30 days to cure such condition, and

3

(iii)the Eligible Employee incurs a Termination of Employment no later than 120 days following the end of the Coverage Period.

1.15“Kroger” means The Kroger Co. and any successor thereto.  The term successor shall include, without limitation, the surviving entity following any merger or any entity that acquires substantially all of Kroger’s assets.

1.16“Monthly Pay” or “Month’s Pay” means Annual Pay divided by twelve.

1.17“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d)(3) and 14(d) thereof.

1.18“Plan” means The Kroger Co. Employee Protection Plan, as set forth herein, as amended from time to time.

1.19“Plan Administrator” means the Compensation Committee of the Board.

1.20“Severance Benefit” means:

(a)With respect to an Eligible Employee who is non-exempt under the Fair Labor Standards Act, an amount equal to the Eligible Employee’s Monthly Pay multiplied by the Eligible Employee’s total Years of Service not in excess of six years.

(b)With respect to an Eligible Employee who is exempt under the Fair Labor Standards Act, an amount equal to the Eligible Employee’s Monthly Pay multiplied by the Eligible Employee’s total Years of Service not in excess of twelve years.

(c)With respect to an Eligible Employee described in Section 1.20(b) above, the benefit provided under Section 1.20(b) will be increased by the number of months corresponding to the Eligible Employee’s pay level as set forth below:

Pay Level	Additional Months Pay
12 or 13	1
14 or 15	2
31	3
32	4
33	5
34	6
35	7
36	8
37	9
38	10
39	11
Higher Pay Levels	12

4

1.21“Termination of Employment” means an Eligible Employee’s termination of employment with the Company.  In no event shall an Eligible Employee’s employment with the Company be treated as having terminated for purposes of this Plan unless such termination of employment constitutes a “separation from service” (within the meaning of Section 409A of the Code) with the Company.

1.22“Year of Service” means, for purposes of this Plan, the total number of  whole years  during which an Employee was employed by the Company (including service with an entity prior to the date it became an Affiliate), including any periods during which an employee was on vacation or authorized sick leave.

ARTICLE II

BENEFITS AND RIGHTS

2.1Continued Benefits During the Coverage Period.  During the Coverage Period, the Company shall provide each Eligible Employee, while employed by the Company, with employee benefits, perquisites and fringe benefits that, in the aggregate, are no less favorable than those provided to the Eligible Employee immediately prior to the Change in Control.

2.2Benefits Upon Involuntary Termination of Employment.  If an Eligible Employee’s employment is terminated during the Coverage Period by the Company without Cause or by the Eligible Employee for Good Reason, the Eligible Employee shall be entitled to the following benefits:

(a)Severance Benefits.  Kroger shall pay to the Eligible Employee the Eligible Employee’s Severance Benefit, calculated in accordance with Section 1.20 hereof.  The Severance Benefit shall be paid in one lump sum payment to be paid no later than two weeks following the Eligible Employee’s Termination of Employment.

(b)Vacation.  Kroger shall pay to the Eligible Employee no later than two weeks following the Eligible Employee’ termination of employment a lump sum amount equal to the value of the Eligible Employee’s accrued and unpaid vacation (including “banked” vacation), if any, as of the Eligible Employee’s Termination of Employment.

(c)Additional Vacation and Bonus.  Kroger shall pay to the Eligible Employee no later than two weeks following the Eligible Employee’s Termination of Employment, a lump sum amount equal to the Additional Vacation and Bonus Amount multiplied by the number of whole months the Eligible Employee was employed by the

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Company in the year in which the Eligible Employee’s Termination of Employment occurred.

(d)Continued Health Care Insurance.  Immediately following the Eligible Employee’s termination of employment, Kroger shall provide to the Eligible Employee health care coverage that is substantially similar to the coverage provided to the Eligible Employee and at the contribution level being then made by the Eligible Employee immediately prior to the Change in Control.  Such health care coverage shall be provided through a third-party insurance policy and shall continue until the earlier of: (i) the expiration of a number of months equal to the months of the Eligible Employee’s Severance Benefit under Section 1.20, and (ii) the date the Eligible Employee is employed by a subsequent employer and is eligible by reason of such employment to receive substantially similar health care coverage.  Upon termination of such coverage, the Eligible Employee shall be entitled to continuation of health care coverage under such terms as state or federal law may provide as if his or her termination of employment occurred on the last day of health care coverage provided by this Section 2.2(d).

(e)Continued Group Term Life Insurance.  Immediately following the Eligible Employee’s termination of employment, Kroger shall provide to the Eligible Employee at no cost to the Eligible Employee, term life insurance coverage that is substantially similar to the coverage provided immediately prior to the Change in Control.  Such term life insurance shall be provided through a third-party insurance policy, at the election of the Company shall be through the Company or individually issued policies, and shall continue until the earlier of: (i) a period of six months following the Eligible Employee’s termination of employment, and (ii) the date the Eligible Employee is employed by a subsequent employer and is eligible by reason of such employment to receive substantially similar group term life insurance coverage.  In no event shall the taxable value of the benefit provided pursuant to this Section 2.2(e) exceed the amount set forth in Treasury Regulation Section 1.409A-1(b)(9)(iii).

(f)Tuition Reimbursement.  Kroger shall reimburse the Eligible Employee up to $5,000 for up to one full year’s tuition for one course of study at any college, university or technical school, provided that the Eligible Employee shall have commenced classes within one year after the Eligible Employee’s termination of employment, reimbursement will be further limited to (i)75% of the tuition for courses in which the Eligible Employee receives a grade of B (including pluses and minuses), (ii) 50% of the tuition for courses in which the Eligible Employee receives a grade of C (including pluses and minuses) or a grade of  “pass” in courses in which only “pass” and “fail” grades are awarded, and (iii) 0% of the tuition for courses in which the Eligible Employee receives a grade lower than C.  Claims for reimbursement, including evidence of receipt of a qualifying grade, must be made no later than six months following the end of the one-year period and shall be accompanied by such documentation evidencing tuition payment as Kroger may reasonably require.  Kroger shall reimburse the Eligible Employee no later than 30 days following the receipt of such reimbursement request.

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(g)Outplacement Assistance.

(i)Kroger shall reimburse the Eligible Employee for outplacement assistance expenses incurred during the first six months following the Employee’s termination of employment up to the amount provided in Section 2.2(g)(ii) hereof.  Claims for reimbursement must be made no later than six months following the end of the six-month period and shall be accompanied by such documentation evidencing outplacement assistance expenses as Kroger may reasonably require.  Kroger shall reimburse the Eligible Employee no later than 30 days following the receipt of such reimbursement request.

(ii)The maximum amount of reimbursable outplacement expenses is as follows:

(A)If the Eligible Employee is non-exempt under the Fair Labor Standards Act, the maximum amount is $5,000; and

(B)If the Eligible is exempt under the Fair Labor Standards Act, the maximum amount is $10,000.

(h)Limitation on Benefits.  In no event will the Total Payments (as defined in Section 2.5(b) hereof to any executive officer exceed 2.99 times the officer’s average W-2 earnings over the preceding five years.  In the event that the total payments under Section 2.2 of this Plan would exceed such amount, (i) the Severance Benefits provided for by Section 2.2(a) hereof shall first be reduced (if necessary, to zero), and (ii) the benefits provided for by the remaining provisions of Section 2.2 hereof shall next be reduced so that the Total Payments do not exceed 2.99 times such officer’s average W-2 earnings over the preceding five years.

2.3Benefits on Termination in Connection with Sale of Assets.  Notwithstanding Section 2.2, if the Company terminates an Eligible Employee’s employment without Cause, Kroger transfers all or substantially all of the assets at the employment location where the Eligible Employee was employed by the Company within 30 days of such Termination of Employment, and the entity acquiring such assets offers employment to the Eligible Employee under substantially the same terms and conditions as formerly provided by the Company, then Kroger shall pay to such Eligible Employee a lump sum payment in an amount equal to the Eligible Employee’s Monthly Pay no later than 60 days following the Eligible Employee’s Termination of Employment and such Eligible Employee shall not be entitled to receive any other payments or benefits under the Plan.  The provisions of this Section 2.3 shall apply regardless of whether the Eligible Employee accepts such offer of employment. The provisions of this Section 2.3 shall not apply in the case of a transaction described in Article III hereof.

2.4Certain Terminations of Employment.  In the event an Eligible Employee’s employment is terminated by the Company for Cause or an Eligible Employee voluntarily terminates employment with the Company other than for Good

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Reason, the Eligible Employee shall not be entitled to any payments or benefits hereunder.

2.5Golden Parachute Provisions.

(a)Subject to the provisions of Section 2.2(h) hereof, in the event that any payment or benefit received or to be received by an Eligible Employee in connection with a Change in Control or the termination of the Eligible Employee’s employment (whether pursuant to the terms of the Plan or any other plan, arrangement or agreement with Kroger, any Person whose actions result in a Change in Control or any Person affiliated with Kroger or such Person) (all such payments and benefits, including the payments and benefits provided for hereunder, being hereinafter called “Total Payments”), will be subject to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), then subject to the provisions of Section 2.5(c) hereof, Kroger shall pay to the Eligible Employee an additional amount (the “280G Gross-Up Payment”) such that the net amount retained by the Eligible Employee, after deduction of any Excise Tax on the Total Payments and any federal, state, local income and employment taxes and Excise Taxes on the 280G Gross Up Payment, shall be equal to the Total Benefits.

(b)For purposes of determining the amount of the Excise Tax, the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to (i) the Total Payments, minus (ii) the amount of such Total Payments that, in the opinion of tax counsel selected by Kroger’s independent auditors (“Tax Counsel”), are not excess parachute payments (within the meaning of Section 280G(b)(1) of the Code).  Except as otherwise provided herein, all determinations required to be made under this Section 2.5 shall be made by Tax Counsel, which determinations shall be conclusive and binding on the Eligible Employee and Kroger absent manifest error.

(c)In the event that the Total Payments payable to or for the benefit of the Eligible Employee are less than one hundred ten percent (110%) of the maximum amount the Eligible Employee could receive without becoming subject to the Excise Tax (the “Maximum Amount”), then (i) the Severance Benefits provided for by Section 2.2(a) of the Plan shall first be reduced (if necessary, to zero), and (ii) the benefits provided for by the remaining provisions of Section 2.2 of the Plan shall next be reduced so that the Total Payments do not exceed the Maximum Amount.

(d)Kroger shall pay the 280G Gross-Up Payment to the Eligible Employee within 30 days following the Eligible Employee’s remittance of the tax in respect of which the 280G Gross-Up Payment relates.

(e)In the event that (i) a 280G Gross-Up Payment is paid to the Eligible Employee pursuant to Section 2.5(a), (ii) there is a final determination by the Internal Revenue Service or, if such determination is appealed, a final determination by any court of competent jurisdiction (“a “Final Determination”), that the Excise Tax is less than the amount taken into account hereunder in calculating the 280G Gross-Up Payment, and (iii) after giving effect to such Final Determination, the Severance Benefits

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are to be reduced pursuant to Section 2.5(c), the Eligible Employee shall repay to Kroger, within five business days following the date of the Final Determination, the 280G Gross-Up Payment, the amount of the reduction in the Severance Benefits, plus interest on the amount of such repayments at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.

(f)In the event that (i) a 280G Gross-Up Payment is paid to the Eligible Employee pursuant to Section 2.5(a), (ii) there is a Final Determination that the Excise Tax is less than the amount taken into account hereunder in calculating the 280G Gross-Up Payment, and (iii) after giving effect to such Final Determination, the Severance Benefits are not to be reduced pursuant to Section 2.5(c), the Eligible Employee shall repay to Kroger, within five business days following the date of the Final Determination, the portion of the 280G Gross-Up Payment attributable to such reduction (plus that portion of the 280G Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the 280G Gross-Up Payment being repaid by the Eligible Employee), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Eligible Employee’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.

(g)Except as otherwise provided in paragraph (h) below, in the event there is a Final Determination that the Excise Tax exceeds the amount previously taken into account hereunder in determining the 280G Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the 280G Gross-Up Payment), Kroger shall pay to the Eligible Employee, within five business days following the date of the Final Determination, the sum of (i) a 280G Gross-Up Payment in respect of such excess and in respect of any portion of the Excise Tax with respect to which Kroger had not previously made a 280G Gross-Up Payment, including a 280G Gross-Up Payment in respect of any Excise Tax attributable to amounts payable under clauses (ii) and (iii) of this paragraph (g) (plus any interest, penalties or additions payable by the Eligible Employee with respect to such excess and such portion), (ii) if Severance Benefits were reduced pursuant to Section 2.5(c) but after giving effect to such Final Determination, the Severance Benefits should not have been reduced pursuant to Section 2.5(c), the amount by which the Severance Benefits were reduced pursuant to Section 2.5(c), and (iii) interest on such amounts at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.

(h)In the event that (i) Severance Benefits were reduced pursuant to Section 2.5(c) and (ii) the aggregate value of Total Payments which are considered “parachute payments” within the meaning of Section 280G(b)(2) of the Code is subsequently redetermined in a Final Determination, but such redetermined value still does not exceed 110% of the Maximum Amount, then, within five business days following such Final Determination, (x) Kroger shall pay to the Eligible Employee the amount (if any) by which the reduced Severance Benefits (after taking the Final Determination into account) exceeds the amount of the reduced Severance Benefits

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actually paid to the Eligible Employee, plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code, or (y) the Eligible Employee shall pay to Kroger the amount (if any) by which the reduced Severance Benefits actually paid to the Eligible Employee exceeds the amount of the reduced Severance Benefits (after taking the Final Determination into account), plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.

(i)To the extent that any payment to be made to an Eligible Employee pursuant to this Section 2.5 constitutes “deferred compensation” that is subject to Section 409A of the Code, such payment shall be made on the later of the date specified by the foregoing provisions of this Section 2.5 or the date that is six months after the Eligible Employee’s Termination of Employment.

2.6Mitigation.  An Eligible Employee shall not be required to mitigate damages or the amount of the Eligible Employee’s benefits by seeking or accepting other employment, nor shall the amount of such benefits be reduced by the amount of any payments required to be made by Kroger outside of the Plan or by the amount of any compensation earned by such Eligible Employee in any subsequent employment.

2.7Reduction of Benefits by Other Required Benefits.  Notwithstanding any other provision of this Plan to the contrary, the Severance Benefits provided under Section 2.2(a) hereof shall be reduced by the amount of any severance payments made pursuant to a written employment agreement between the Company and an Eligible Employee.  For purposes of this Section 2.7, payments made pursuant to a stock appreciation right, limited stock appreciation right, stock option or stock incentive agreement, payments under any employee benefit plan or arrangement providing benefits for more than one employee, whether a qualified or non-qualified plan, payments of deferred compensation, and payments under any other arrangement between Kroger or any Affiliate and any group of employees of Kroger or any Affiliate shall not be deemed “severance payments made pursuant to a written employment agreement.”

ARTICLE III

SUCCESSOR TO COMPANY OR AN AFFILIATE

In addition to any obligations imposed by law upon any successor to Kroger, Kroger shall be obligated to require any successor or transferee (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of its business and/or assets, or to all or substantially all of the business, assets or stock of an Affiliate, to expressly assume its (and/or the relevant Affiliate’s) obligations under this Plan with respect to the persons employed in connection with the business and assets so transferred, in the same manner and to the same extent that Kroger (or the Affiliate) would be required to perform if no such succession had taken place.  It is intended that any such successor or transferee shall be bound to the provisions of this Plan whether or not Kroger shall have complied with the foregoing provisions of this Article III.

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ARTICLE IV

LEGAL FEES AND ARBITRATION

4.1Legal Fees.

(a)Kroger shall reimburse each Eligible Employee for all reasonable legal fees, costs of litigation, and other expenses actually incurred by the Eligible Employee if the Eligible Employee, either alone or as part of a class of Eligible Employees, prevails in any legal action arising from Kroger’s refusal to provide any benefit or payment to which the Eligible Employee becomes entitled under this Plan, or as a result of Kroger’s contesting the validity, enforceability or interpretation of the Plan.  For the purposes of this Section 4.1, an Eligible Employee will be deemed to prevail in a legal action upon the execution of a binding legal settlement agreement between Kroger and the Eligible Employee (or a class of Eligible Employees that includes the Eligible Employee) or upon the issuance of a final non-appealable judgment, in either case which provides for the Eligible Employee to receive either a monetary recovery or any benefits described in Article II hereof.  Kroger may require the Eligible Employee to provide documentation evidencing that the Eligible Employee has prevailed in the legal action.

(b)Claims for reimbursement must be made no later than December 31 of the year in which the Eligible Employee is deemed to prevail in the legal action, or if later, [45 days] after the date such Eligible Employee is deemed to prevail in the legal action and shall be accompanied by such documentation evidencing the legal fees and other expenses as Kroger may reasonably require.  Kroger shall reimburse the Eligible Employee no later than 30 days following the receipt of such reimbursement request. Any reimbursement provided for under Section 4.1(a) shall be paid in a lump sum payment no later than 30 days following the date on which the Eligible Employee is deemed to prevail in the action.

4.2Arbitration.  Each Eligible Employee shall have the right to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with the Plan settled by arbitration, conducted before a panel of three arbitrators sitting in a location selected by the Eligible Employee within 50 miles from the location of his or her principal employment location, in accordance with the rules of the American Arbitration Association then in effect.  Judgment may be entered on the award of the arbitrator in any court having jurisdiction.  Kroger shall pay any fees and expenses associated with the arbitration and, if the Eligible Employee prevails, Kroger shall pay his or her attorney’s fees as provided in Section 4.1.

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ARTICLE V

PLAN ADMINISTRATION

5.1Authority to Plan Administrator.  The Plan shall be interpreted, administered and operated by the Plan Administrator, subject to the express provisions of the Plan.

5.2Delegation of Duties.  The Plan Administrator may delegate any of its duties hereunder to such person or persons from time to time as it may designate.

5.3Engagement of Third Parties.  The Plan Administrator is empowered, on behalf of the Plan, to engage accountants, legal counsel and such other personnel as it deems necessary or advisable to assist it in the performance of its duties under the Plan.  The functions of any such persons engaged by the Plan Administrator shall be limited to the specified services and duties for which they are engaged, and such persons shall have no other duties, obligations or responsibilities under the Plan.  Such persons shall exercise no discretionary authority or discretionary control respecting the management of the Plan.  All reasonable expenses hereof shall be borne by Kroger.

ARTICLE VI

CLAIMS

6.1Claims Procedure.  Claims for benefits under the Plan shall be filed with the Plan Administrator.  If any Employee or other payee claims to be entitled to a benefit under the Plan and the Plan Administrator determines that such claim should be denied in whole or in part, the Plan Administrator shall notify such person of its decision in writing.  Such notification will be written in a manner calculated to be understood by such person and will contain (a) specific reasons for the denial, (b) specific reference to pertinent Plan provisions, (c) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary, and (d) information as to the steps to be taken if the person wishes to submit a request for review.  Such notification will be given within 60 days after the claim is received by the Plan Administrator.

6.2Time to File Claim.  A claim for a benefit under Section 6.1 shall be filed no later than 60 days after the latest date on which such benefit could have been timely paid hereunder assuming the Eligible Employee or other payee were entitled to the benefit.

6.3Review Procedure.  Within 60 days after the date on which a person receives a written notice of a denied claim such person (or his duly authorized representative) may (a) file a written request with the Plan Administrator for a review of his denied claim and of pertinent documents and (b) submit written issues and comments to the Plan Administrator.  The Plan Administrator will notify such person of its decision in writing.  Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision  as well as specific references to pertinent Plan provisions.  The decision on review will be made within 60 days after the request for review is received by the Plan Administrator.

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6.4Claims and Review Procedures Not Mandatory.  The claims procedure and review procedure provided for in this Article VI are provided for the use and benefit of Eligible Employees who may choose to use such procedures, but compliance with the provisions of this Article VI are not mandatory for any Eligible Employee claiming benefits under the Plan.  It shall not be necessary for any Eligible Employee to exhaust these procedures and remedies prior to bringing any legal claim or action, or asserting any other demand, for payments or other benefits to which such Eligible Employee claims entitlement hereunder.

ARTICLE VII

AMENDMENT AND TERMINATION

The Plan may be amended or terminated by the Board at any time; provided, however, that the Plan may not be terminated or amended in a manner adverse to the interests of any Eligible Employee (without the consent of the Eligible Employee) during the Coverage Period.  Upon the expiration of the Coverage Period, the Plan may not be amended in any manner that would adversely affect the rights of any Eligible Employee to receive any and all payments or benefits pursuant to Article II hereof by reason of a termination of the Eligible Employee’s employment during the Coverage Period, and Kroger’s obligations to make such payments and provide such benefits shall survive any termination of the Plan.

ARTICLE VIII

MISCELLANEOUS

8.1No Right to Continued Employment.  Nothing in the Plan shall be deemed to give any Eligible Employee the right to be retained in the employ of the Company, or to interfere with the right of Kroger or any Affiliate to discharge him or her at any time and for any lawful reason, with or without notice, subject to the terms of this Plan.

8.2No Assignment of Benefits. Except as otherwise provided herein or by law, no right or interest of any Eligible Employee under the Plan shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including without limitation by execution, levy, garnishment, attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be effective; and no right or interest of any Eligible Employee under the Plan shall be liable for, or subject to, any obligation or liability of such Eligible Employee.

8.3Death. This Plan shall inure to the benefit of and be enforceable by an Eligible Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  If an Eligible Employee shall die while any amount would still be payable to the Eligible Employee hereunder (other than amounts which, by their terms, terminate upon the death of the Eligible Employee) if the Eligible Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to the executors, personal representatives or administrators of the Eligible Employee’s estate.

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8.4Enforceability.  If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.

8.5Modification, Waiver.  After a Change in Control, no right of any Eligible Employee under this Plan may be released, modified, waived or discharged by an Eligible Employee unless such release, waiver, modification or discharge is agreed to in writing signed by the Eligible Employee.  A waiver by an Eligible Employee at any time of any breach of the terms of this Plan or of compliance with any condition or provision of this Plan to be performed by Kroger shall not be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

8.6Withholding Taxes.  All payments made and benefits provided hereunder shall be subject to all applicable federal, state, local and foreign tax withholding requirements.

8.7Headings.  The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

8.8Notices.  Any notice or other communication required or permitted pursuant to the terms hereof shall be deemed to have been duly given when delivered or mailed by United States Mail, first class, postage prepaid, addressed to the intended recipient at his, her or its last known address.

8.9Governing Law.  This Plan shall be construed and enforced according to the laws of the State of Ohio to the extent not preempted by Federal law, which shall otherwise control.

IN WITNESS WHEREOF, The Kroger Co. has caused the Plan to be duly adopted this 13th day of December, 2007.

THE KROGER CO.
By:	/s/	Paul Heldman
		Paul Heldman
		Executive Vice President,
		Secretary and General Counsel

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EX-10.16

EXHIBIT 10.16

THE KROGER CO.

2008

LONG-TERM BONUS PLAN

  1.  PURPOSE OF THE LONG-TERM BONUS PLAN.  The purpose of the Long-Term Bonus Plan is to reward participating Kroger executive employees for improved Company long-term performance.

  2.  ELIGIBILITY.  Awards under this plan may be made only to employees who are executives of The Kroger Co. and its subsidiaries and affiliates at pay level 35 or higher and who are notified in writing by the Compensation Committee (or Kroger’s CEO at the direction of the Compensation Committee) of their participation in the Plan.

  3.  ADMINISTRATION.  The Compensation Committee of the Board of Directors will administer the Plan.  The Committee will construe and interpret the Plan.  The Committee has full authority and discretion to determine the timing of awards, to select from those eligible the individuals that will participate in the Plan, and to establish such other measures as may be necessary or appropriate to the objectives of the Plan.  All decisions regarding the vesting of awards under the Plan will be made by the Committee.  The Committee’s decisions will be final and binding on all parties, including the Company and all participants.

  4.  AWARD CYCLE.  The 2008 Plan will include fiscal years 2008, 2009, 2010 and 2011.  The last day of fiscal 2011 will be the end of the award cycle for the 2008 Plan It is contemplated that a new plan will be adopted every two years, with each plan covering four years.

  5.  LONG-TERM BONUS.  Each participant is eligible to earn a long-term bonus based on actual Company performance measured against the performance standards described below.

  6.  COMPANY PERFORMANCE STANDARDS. Company performance will be measured in three ways:  (i) improvement in Customer 1st Tracker scores, (ii) reductions in Total Operating Costs (excluding fuel) as a percentage of sales, and (iii) improvement in Associate 1st Tracker scores.

(a)Customer 1st Tracker:  Customer 1st Tracker is a measure of Company performance in four key areas (People, Shopping Experience, Product and Price) based on results of customer surveys.  The Customer 1st Tracker methodology to be used under this Plan is the one currently in use by the Company, subject to such modifications as the Committee may approve from time to time.  Fiscal year end 2007 results will be the base against which performance under the Plan will be measured.

(b)Total Operating Costs:  Total operating costs, for purposes of the Plan, will be calculated by adding OG&A, depreciation, rent, warehouse and transportation costs, shrink and advertising expenses.  The total operating costs, as a percentage of sales, for fiscal year 2007 will be the base against which performance under the Plan will be measured.

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(c)Associate 1st Tracker:  Associate 1st Tracker is a measure of Company performance in eleven key attributes designed to measure associate satisfaction (Our People are Great) and one key attribute designed to measure how the Company’s focus on its values supports how associates do business (Knowledge of Values), based on the results of associate surveys.  The Associate 1st Tracker methodology to be used under this Plan is the one currently in use by the Company, subject to such modifications as the Committee may approve from time to time.  Fiscal year end 2007 results will be the base against which performance under the Plan will be measured.

  7.  DETERMINING AWARD PAYOUTS.  Long-Term Bonus awards under the Plan will be calculated as of the end of fiscal year 2011.  Provided that improvement is achieved in each of the four key areas, for each one point improvement in the Customer 1st Tracker score, a bonus amount equal to one percent of the participant’s base salary as of February 2, 2008, will be earned.  For each basis point reduction in Total Operating Costs, an additional bonus amount equal to one-quarter of one percent of the participant’s base salary as of February 2, 2008, will be earned.  Under the Associate 1st Tracker, for each one point improvement in the Our People are Great attributes, and for each one point improvement in the Knowledge of Values attribute, a bonus amount equal to one percent of the participant’s base salary as of February 2, 2008, will be earned.

  8.  PAYMENT OF AWARDS.  Awards, if any, earned under the terms of the Plan will be paid in cash.  Unless some other date is selected by the Committee, awards will be paid in March of 2012 except for participants who make deferral elections under the deferred compensation supplement in which case the provisions of the deferred compensation supplement will control.  Amounts earned under the Plan will not be taken into consideration in calculating earnings under any of the Company’s pension plans.

  9.  ADJUSTMENTS.  The Committee will make such adjustments as it deems necessary or desirable based on changes in accounting or tax law, or on account of any acquisition, disposition or other developments that may affect the calculation of awards under the Plan.

  10. TERMINATION OF EMPLOYMENT, RETIREMENT, OR DEATH OF PARTICIPANT.

     (a)  Participation in the Plan does not create a contract of employment, or grant any employee the right to be retained in the service of the Company. Any participant whose employment is terminated by the Company for cause, including but not limited to violations of The Kroger Co. Policy on Business Ethics; who voluntarily terminates his or her employment (other than in accordance with paragraph (b) below); or whose pay level drops below pay level 35, prior to the end of the 2008 Plan award cycle, will forfeit all rights to payment under the Plan.

     (b)  If a participant voluntarily terminates his or her employment after reaching age 55 with at least five years of service with the Company, participation will continue, and that participant will be paid a prorata share of the amount earned according to the terms of the award proportionate to the period of active service during the 2008 Plan award cycle.

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     (c) If a participant dies during the 2008 Plan award cycle, participation will continue, and the participant’s designated beneficiary (or if none, then the participant’s estate) will be paid a prorata share of the amount earned according to the terms of the award proportionate to the period of service during the 2008 Plan award cycle before the participant’s death.

  11. EFFECTIVE DATE OF PLAN. This plan will take effect on February 3, 2008.

  12. AMENDMENT, SUSPENSION, OR TERMINATION OF PLAN. The Committee or the Board of Directors of the Company may at any time suspend, terminate or amend the plan in such respects as it deems to be in the best interests of the Company. No amendment will adversely affect any right of any participants, or their successors in interest, under the terms of any award made hereunder before the effective date of the amendment.

  13. DEFERRED COMPENSATION SUPPLEMENT.  The Deferred Compensation Supplement attached as Annex I hereto is adopted as a part of this Plan.

IN WITNESS WHEREOF, The Kroger Co. has caused this Plan to be adopted this 26th day of February, 2008.

THE KROGER CO.
By	/s/ Paul Heldman
		Paul Heldman
		Executive Vice President,
		Secretary and General Counsel

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ANNEX I

DEFERRED COMPENSATION SUPPLEMENT TO

THE KROGER CO. 2008 LONG-TERM BONUS PLAN

Effective as of February 26, 2008

1.Establishment and Purpose of this Deferred Compensation Supplement

Effective as of the date set forth above, The Kroger Co. (the “Company”) adopts this Deferred Compensation Supplement (the “Supplement”) to The Kroger Co. 2008 Long-Term Bonus Plan (the “Plan”). The purpose of the Supplement is to provide supplemental deferred compensation to certain highly compensated employees of the Company. The Supplement is intended to be unfunded and maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Supplement is also intended to comply with the requirements of Section 409A of the Internal Revenue Code (the “Code”).

2.Definitions

As used in the Supplement, in addition to the terms defined in Section 1 of the Supplement, these words and phrases have the following meanings (all other capitalized terms in the Supplement have the meanings ascribed to them in the Plan, unless the context requires otherwise):

(a)“Account” means a bookkeeping account established on the records of the Company for a Participant which is credited with amounts deferred by a Participant and interest on those amounts under Section 4 of the Supplement.

(b)“Affiliate” means an organization that is (i) a member of the same controlled group of corporations (as defined in Code Section 414(b)) as the Company, (ii) a trade or business under common control (as defined in Code Section 414(c)) with the Company, (iii) an organization which is a member of an affiliated service group (as defined in Code Section 414(m)) that includes the Company, or (iv) otherwise required to be aggregated with the Company under Code Section 414(o).

(c)“Board” means the Board of Directors of the Company.

(d)“Committee” means the Retirement Management Committee of the Company.

(e)“Company” means The Kroger Co., an Ohio corporation, or any successor.

(f)“Compensation Committee” means the Compensation Committee of the Board.

(g)“Designated Beneficiary” means the persons or entities designated by the Participant, in a form and manner acceptable to the Committee, to receive payment of the remaining balance of the Participant’s Account in the event the Participant dies before receiving the entire interest credited to the Participant’s Account.

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(h)“Election” means an election by an Eligible Employee, consistent with the terms of the Supplement and in a form and manner satisfactory to the Committee, to elect to defer a Long-Term Bonus for a Performance Period and to specify a time and form of payment for the portion of the Participant’s Account attributable to such deferred amounts.

(i)“Eligible Employee” means any individual who has been designated as eligible to participate in the Plan.

(j)“Insolvency” means an entity is unable to pay its debts as they become due, or is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.

(k)“Long-Term Bonus” means a bonus payable to an Eligible Employee under the Plan.

(l)“Participant” means an Eligible Employee who has elected to defer a Long-Term Bonus payable under the Plan in accordance with Section 3 of the Supplement.

(m)“Performance-Based Compensation” means compensation where the amount of, or entitlement to, the compensation is contingent on the satisfaction of pre-established organizational or individual performance criteria relating to a Performance Period in which a Participant performs services. In determining whether an amount constitutes Performance-Based Compensation, the Committee shall apply the rules set forth in Treasury Regulation Section 1.409A-1(e), or any subsequent guidance.

(n)“Performance Period” means a period of at least twelve (12) months in which Performance-Based Compensation is determined for the performance of services.

(o)“Plan Year” means the fiscal year of the Company.

(p)“Unforeseeable Emergency” means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. An Unforeseeable Emergency will not include the need to send a Participant’s child to college or the desire to purchase a home.

3.Deferral Election.

(a)Election to Defer Long-Term Bonus. A Participant may file an Election to defer receipt of all or any portion of the Participant’s Long-Term Bonus that becomes payable under the Plan. A Participant’s Election to defer receipt of a Long-Term Bonus must be made no later than six months prior to the end of the applicable Performance Period, and is irrevocable once made, and must designate the time and manner in which such deferred Long-Term Bonus, and interest on such deferred amount, is to be later paid in accordance with the distribution options set forth in Section 5.

(b)Designated Beneficiary. A Participant shall, in the Participant’s Election, name a Designated Beneficiary with respect to amounts credited to the Participant’s Account. The Participant may change or revoke the designation of a Designated Beneficiary by written notice to the Committee or the Committee’s designee.

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(c)Termination of Participation. An individual shall cease to be a Participant in this Supplement when all amounts allocated to the Participant’s Account have been paid under the terms of this Supplement.

4.Benefits.

(a)Crediting of Deferred Amounts. As of the date a Long-Term Bonus would otherwise be payable to a Participant under Section 8 of the Plan, a Participant’s Account shall be credited with an amount equal to the portion of the Long-Term Bonus deferred under this Supplement pursuant to the Participant’s Election for the Performance Period in question.

(b)Crediting of Interest. A Participant’s Account for each Performance Period shall be credited with interest based upon the interest rate established for the Plan Year by the Board, or by the Compensation Committee, before the beginning of each Plan Year. Once established by the Board or the Compensation Committee, such interest rate shall apply for subsequent Plan Years, unless changed by the Board or the Compensation Committee. For each Plan Year, a Participant’s Account shall be credited with interest on a quarterly basis pursuant to the following provisions:

(i)The interest for a calendar quarter shall be credited effective as of the last day of the calendar quarter.

(ii)The interest for a calendar quarter shall be in an amount equal to (A) ¼ of the applicable interest rate for the Plan Year, multiplied by (B) the average of the beginning and ending balances of the Participant’s Account for the calendar quarter.

(c)Effect upon the Kroger Consolidated Retirement Benefit Plan. Amounts deferred under the Supplement are not taken into account in computing the monthly benefits to which a Participant and/or Participant’s spouse or beneficiary is entitled under the Kroger Consolidated Retirement Benefit Plan or any other pension plan of the Company.

5.Time and Form of Distribution.

(a)Distribution following Termination of Employment. A Participant, in the Participant’s Election for a Performance Period, shall specify the time and manner that the Participant’s Account attributable to the Performance Period is to be paid to the Participant upon the Participant’s termination of employment with the Company (for any reason other than death) from among the following choices:

(i)Immediate Lump Sum. The Account shall be paid to the Participant in a single cash lump sum payment as soon as administratively possible after the first day of the calendar quarter that occurs six months after the Participant’s termination of employment. The amount of the lump sum payment shall be equal to the balance of the Account as of the last day of the calendar quarter preceding the date of payment to the Participant.

(ii)Deferred (Next Year) Lump Sum. The Account shall be paid to the Participant in a single cash lump sum payment as soon as administratively possible after the later of (A) six months after the Participant’s termination of employment or (B) the first day of the calendar year following the date of the Participant’s termination of employment. The amount of the lump sum

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payment shall be equal to the balance of the Account as of the last day of the calendar quarter preceding the date of payment to the Participant.

In the event that the Participant dies before the date of actual payment of the lump sum payment, the Participant’s Designated Beneficiary shall receive the Participant’s lump sum payment at the same time and manner prescribed by subsection (i) or (ii), as applicable.

(iii)Immediate Quarterly Installments. The Account shall be paid to the Participant in quarterly installment payments (not less than 4 nor more than 40) commencing as soon as administratively possible after the first day of the calendar quarter that occurs six months after the Participant’s termination of employment. The amount of each quarterly installment shall be determined by dividing (A) the balance of the Account as of the last day of the calendar quarter preceding the quarterly installment payment to the Participant, by (B) the number of the remaining quarterly installment payments to be made to the Participant plus the payment currently being made.

(iv)Deferred (Retirement Age) Quarterly Installments. The Account shall be paid to the Participant in quarterly installment payments (not less than 4 nor more than 40) commencing as soon as administratively possible after the first day of the calendar quarter that occurs six months after the later of (A) the Participant’s termination of employment or (B) the date of the Participant’s retirement age specified in the Participant’s Election. The amount of each quarterly installment shall be determined by dividing (A) the balance of the Account as of the last day of the calendar quarter preceding the quarterly installment payment to the Participant, by (B) the number of the remaining quarterly installment payments to be made to the Participant plus the payment currently being made.

In the event that the Participant dies before commencement of the Participant’s quarterly installment payments, or the Participant dies after commencement of the Participant’s quarterly installment payments, the Participant’s Designated Beneficiary shall receive the Participant’s quarterly installment payments, at the election of the Participant in the Participant’s Election, either (A) at the same time and manner prescribed by subsections (iii) or (iv), as applicable, as if the quarterly installment payments were being made to the Participant or (B) in a single lump sum payment as soon as administratively possible after the first day of the calendar quarter following the date of the Participant’s death in an amount equal to the balance of the Account as of the last day of the calendar year preceding the date of payment to the Designated Beneficiary.

(b)Distribution upon the Death of a Participant. A Participant, in the Participant’s Election, shall specify the time and manner that the Account is to be paid to the Participant’s Designated Beneficiary upon the Participant’s death.

(i)Time and Manner of Payment. The Participant may elect one of the following time and manner of payments with respect to payments to the Participant’s Designated Beneficiary:

(A)Immediate (Next Quarter) Lump Sum. The Account shall be paid to the Participant’s Designated Beneficiary in a single cash lump sum payment as soon as administratively possible after the first day of the calendar quarter following the date of the Participant’s death. The amount of the lump sum payment shall be equal to the balance of the Account as of the last day of the calendar quarter preceding the date of payment to the Designated Beneficiary.

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(B)Deferred (Next Year) Lump Sum. The Account shall be paid to the Participant’s Designated Beneficiary in a single cash lump sum as soon as administratively possible after the first day of the calendar year following the date of the Participant’s death. The amount of the lump sum payment shall be equal to the balance of the Account as of the last day of the calendar year preceding the date of payment to the Designated Beneficiary.

(C)Immediate (Next Quarter) Quarterly Installments. The Account shall be paid to the Participant’s Designated Beneficiary in quarterly installment payments (not less than 4 nor more than 40) commencing as soon as administratively possible after the first day of the calendar quarter following the date of the Participant’s death. The amount of each quarterly installment shall be determine by dividing (1) the balance of the Account as of the last day of the calendar quarter preceding the quarterly installment payment to the Designated Beneficiary, by (2) the number of the remaining quarterly installment payments to be made to the Designated Beneficiary plus the payment currently being made.

(ii)Special Death Distribution Provisions. In the event of the death of the Participant, the Committee must receive written notice and verification of the death of the Participant and reserves the right to delay distribution of a Participant’s Account to the Participant’s Designated Beneficiary until the Committee’s receipt and acceptance of such notice and verification.

The distribution options elected by the Participant in Sections 5(a) and (b) shall apply to and be binding upon any subsequent Designated Beneficiary, including any such subsequent Designated Beneficiary arising by a change by the Participant or by operation of any contingency provisions of the Participant’s beneficiary designation.

The Participant’s written designation of a Designated Beneficiary and its contingency provisions (if any) shall govern the determination of the proper person entitled to benefits under the Plan following the death of the Participant and the Participant’s Designated Beneficiary. However, in the absence of a specific contingency provision therefore with respect to the Account, the following default provisions shall apply:

(A)In the event that the Participant dies without any Designated Beneficiary, the Participant’s Designated Beneficiary shall be deemed the Participant’s estate.

(B)In the event that the Participant’s Designated Beneficiary dies after the Participant and with outstanding benefits under the Plan, such Designated Beneficiary’s own beneficiary designated in writing to the Committee (or, if none, the Designated Beneficiary’s estate) shall thereafter be considered the Participant’s Designated Beneficiary.

(C)In the event that the Participant and the Designated Beneficiary die simultaneously or under circumstances such that the order of death cannot be determined, the Participant, for purposes of the Plan, shall be deemed to have survived the Designated Beneficiary.

(c)Changes to Distribution Elections. The Committee may, in its discretion, allow a Participant to elect to defer the time of payment or change the form of payment of the Participant’s Account; provided, however, that no such election shall be effective unless:

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(i)The election will not take effect until at least twelve (12) months after the date on which the election is made,

(ii)Except in the case of a payment as the result of the Participant’s death or the occurrence of an Unforeseeable Emergency, the first payment with respect to such election is deferred for not less than five years from the date on which such payment would otherwise have been made, and

(iii)Any election which is related to a payment at a specified time or pursuant to a fixed schedule may not be made less than twelve months prior to the date of the first scheduled payment under that election.

(d)Unforeseeable Emergency. If a Participant has an Unforeseeable Emergency, the Participant may apply in writing to the Committee for an emergency payment under this Section 5(d). The Company will pay to the Participant that portion of the Participant’s Account under the Plan as necessary to meet the Unforeseeable Emergency. For purposes of this Section 5(d), a payment due to an Unforeseeable Emergency will not exceed the amount that the Committee determines is reasonably necessary to satisfy the need created by the Unforeseeable Emergency, plus amounts reasonably necessary to pay taxes reasonably anticipated as the result of the payment, after taking into account the extent to which such need is or may be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of the Participant’s assets (to the extent that such liquidation would not itself cause severe financial hardship). Upon application for a payment due to Unforeseeable Emergency, the Participant will furnish to the Committee all information as the Participant deems appropriate and as the Committee deems necessary and appropriate to make a determination on the application.

(e)Tax Withholding. The Company may withhold income or other taxes from any distribution of a Participant’s Account if the Company determines that withholding is necessary or appropriate to comply with any Federal, State or local tax withholding or similar requirements of law.

(f)Payments to Legal Incompetents. Upon proof satisfactory to the Committee that any person entitled to receive a payment under the Supplement is legally incompetent to receive the payment, the Committee may direct the payment to be made to a guardian or conservator of the estate of the person. Any payment made under the preceding sentence will release the Company from all further liability to the extent of the payment made.

(g)Discharge of Obligation. Any payment made by the Company pursuant to the Supplement shall, to the extent of the payments made, constitute a complete discharge of all obligations under the Supplement of the Company and the Committee The Committee may require the payee, as a condition precedent to any payment, to execute a receipt and release in a form satisfactory to the Committee. The Committee may also require the payee, as a condition precedent to any payment, to execute an acknowledgement or agreement in a form satisfactory to the Committee concerning repayment of erroneous or duplicate benefits.

(h)Correction of Mistakes. Any mistake in the amount of a Participant’s benefits under the Supplement may be corrected by the Committee when the mistake is discovered. The mistake

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may be corrected in any reasonable manner authorized by the Committee. In appropriate circumstances (such as where the mistake is not material or is not timely discovered), the Committee may in its sole and absolute discretion waive the making of any correction.

6.Fully Vested; Forfeiture for Cause.

All amounts credited to the Participant’s Account shall be fully vested and nonforfeitable at all times. Notwithstanding the foregoing, any Participant, regardless of age, who is terminated for theft or embezzlement of Company assets, or for accepting bribes from suppliers, or who resigns during the pendency or carrying out of an investigation which established such conduct, shall forfeit 100% of the interest credited to his Account.

7.Funding Policy and Method.

This Supplement shall be unfunded within the meaning of Section 201(2) of ERISA, and all payments under the Supplement shall be made from the general assets of the Company, including, at the sole option of the Company, from any assets held in any trust established by the Company the assets of which are subject to the claims of the Company’s general, unsecured creditors in the event of the Company’s Insolvency. No assets shall be irrevocably set aside to pay benefits under the Supplement in a manner making the assets unreachable by the Company’s general, unsecured creditors in the event of the Company’s Insolvency. Participants and Designated Beneficiaries shall have no right to any specific assets of the Company by virtue or the existence or terms of the Supplement and shall be general, unsecured creditors of the Company at all times with respect to any claim for benefits under the Supplement.

8.Administration

(a)Committee Authority. The Committee shall be responsible for the operation and administration of the Supplement and for carrying out the provisions of the Supplement. The Committee shall have discretionary authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Supplement, and to decide or resolve any and all questions, including interpretations of the Supplement. Any action taken by the Committee in its discretion shall be final and conclusive on all parties. The Committee’s prior exercise of discretionary authority shall not obligate it to exercise its authority in a like fashion in the future. The Committee may, from time to time, delegate to others, including employees of the Company, administrative duties as it sees fit.

(b)Account Statements. As soon as administratively possible after the end of each calendar year, the Company shall prepare and furnish to each Participant a statement of the status of each of his Account of the Plan effective as of the last day of the calendar year, and such other information as the Committee may prescribe.

(c)Indemnification. The Company shall indemnify, through insurance or otherwise, each member of the Committee against any claims, losses, expenses, damages or liabilities arising out of the performance (or failure of performance) of their responsibilities under the Plan.

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9.Claims and Appeals.

(a)Payment of Benefits. The payment of benefits due under the Supplement shall be made at such times and in such amounts as provided for under the terms of the Supplement. Each Participant and Designated Beneficiary shall be obligated to provide the Company a current address so that payments may be made as required. The mailing of a payment to the last known mailing address of a Participant or Designated Beneficiary shall be deemed full payment of the amount so mailed.

(b)Written Claim for Benefits. If a Participant or Designated Beneficiary does not receive payment of benefits under the Supplement which the Participant or Designated Beneficiary believes are due under the Supplement, the Participant or Designated Beneficiary may file a written claim for benefits with the Committee. The written claim shall be in a form satisfactory to, and with such supporting documentation and information as may be required by, the Committee.

(c)Denial of Claim. If a Participant’s or Designated Beneficiary’s claim for benefits is denied in whole or in part by the Committee, a written notice will be furnished to the claimant within 90 days after the date the claim was received. If circumstances require a longer period, the claimant will be notified in writing, prior to the expiration of the 90 day period, of the reasons for an extension of time; provided, however, that no extensions will be permitted beyond 90 days after the expiration of the initial 90 day period.

(d)Reasons for Denial. A denial or partial denial of a claim will clearly set forth:

(i)the specific reason or reasons for the denial;

(ii)a specific reference to pertinent Supplement provisions on which the denial is based;

(iii)a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(iv)an explanation of the procedure for review of the denied or partially denied claim, including the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review.

(e)Review of Denial. Upon denial of a claim, in whole or in part, a claimant or a duly authorized representative of the claimant may request a full and fair review of the denied claim by filing a written notice of appeal with the Committee. Any appeal must be received by the Committee within 60 days of the date that the notice of the denied claim was received. A claimant or the claimant’s authorized representative will have, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits and may submit issues and comments in writing, except for privileged or confidential documentation. The review will take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

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If the claimant fails to file a request for review within 60 days of the notification of denial, the claim will be deemed abandoned and the claimant precluded from reasserting it. If the claimant does file a request for review, the request must include a description of the issues and evidence the claimant deems relevant. Failure to raise issues or present evidence on review will preclude those issues or evidence from being presented in any subsequent proceeding or judicial review of the claim.

(f)Decision Upon Review. The Committee will provide a written decision on review. If the claim is denied on review, the decision shall set forth:

(i)the specific reason or reasons for the adverse determination;

(ii)specific reference to pertinent Supplement provisions on which the adverse determination is based;

(iii)a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits; and

(iv)a statement describing any voluntary appeal procedures offered by the Supplement and the claimant’s right to obtain the information about such procedures, as well as a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA.

A decision will be rendered by the Committee as soon as practicable. Ordinarily decisions will be rendered within 60 days following receipt of the request for review. If the need to hold a hearing or special circumstances require additional processing time, the decision shall rendered as soon as possible, but not later than 120 days following receipt of the request for review.

(g)Finality of Determinations; Exhaustion of Remedies. To the extent permitted by law, decisions reached under the claims procedures set forth in this Section shall be final and binding on all parties. No legal action for benefits under the Supplement shall be brought unless and until the claimant has exhausted all remedies under this Section. In any such legal action, the claimant may only present evidence and theories which the claimant presented during the claims procedure. Any claims which the claimant does not in good faith pursue through the review stage of the procedure shall be treated as having been irrevocably waived. Judicial review of a claimant’s denied claim shall be limited to a determination of whether the denial was an abuse of discretion based on the evidence and theories the claimant presented during the claims procedure. Any suit or legal action initiated by a claimant under the Supplement must be brought by the claimant no later than one year following a final decision on the claim for benefits. Notwithstanding the foregoing, in no event may a claimant initiate suit or legal action more than two years after the facts giving rise to the action occurred. These limitations on suits or legal actions for benefits will apply in any forum where a claimant initiates the suit or legal action.

10.Amendment and Termination of this Supplement.

The Company reserves the right to amend or terminate this Supplement at any time by resolution of the Board or the Compensation Committee. No amendment or termination of this Supplement shall deprive a Participant or Designated Beneficiary of any portion of the Participant’s

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or Designated Beneficiary’s vested benefit accrued under the Supplement as of the date of the amendment or termination.

11.General Provisions.

(a)Definition and Supplement Interpretation. The capitalized words and phrases used throughout the Supplement shall have the meanings in Section 2, unless the context requires otherwise. Unless otherwise plainly required by the context, any gender may be construed to include all genders, and the singular or plural may be construed to include the plural or singular, respectively. The section headings in the Supplement have been inserted for the convenience of reference only and are not to be considered in the interpretation of the Supplement.

(b)Interpretation and Savings Clause. The Supplement is intended to comply with Code Section 409A and guidance issued under Code Section 409A. Notwithstanding any other provision of this Supplement, the Supplement shall be interpreted and administered accordingly. If any provision of the Supplement is held invalid or unenforceable, that invalidity or unenforceability shall not affect any other provision, and the Supplement shall be construed and enforced as if the affected provision had not been included.

(c)No Employment Rights. Neither the Plan or the Supplement, nor the action of the Company in establishing or continuing the Plan or the Supplement, nor any action taken by the Committee, nor participation in the Plan or the Supplement, shall be construed as giving any person any right to remain in the employ of the Company or an Affiliate or, except as provided in the Plan and the Supplement, the right to any payment or benefit. Nothing in the Plan or the Supplement shall affect the right of the Company or an Affiliate to terminate a person’s employment at any time, with or without cause.

(d)Assignment or Alienation of Benefits.

(i)General Rule. Except as expressly provided in the Supplement, the benefits payable under the Plan or the Supplement shall not be subject to assignment or alienation, and any attempt to do so shall be void.

(ii)Domestic Relations Orders. Notwithstanding any other provision of the Supplement, all or a portion of a Participant’s Account may be paid to another person as specified in a domestic relations order that the Committee determines is a Qualified Domestic Relations Order. For this purpose, a “Qualified Domestic Relations Order” means a judgment, decree, or order (including the approval of a property settlement agreement) that:

(A)is issued pursuant to a State’s domestic relations law;

(B)relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of a Participant; and

(C)creates or recognizes the existence of an alternate payee’s right to, or assigns to the alternate payee the right to, receive all or a portion of the Participant’s benefits under the Supplement;

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The Committee shall determine in its sole and absolute discretion whether any document received by it is a Qualified Domestic Relations Order. In making this determination, the Committee may consider the rules applicable to “domestic relations orders” under Code Section 414(p) and Section 206(d) of ERISA, and other rules and procedures it deems relevant. If an order is determined to be a Qualified Domestic Relations Order, the amount to which the alternate payee is entitled under the Qualified Domestic Relations Order shall be paid in a single lump-sum payment as soon as practicable after the determination.

(e)Governing Law. To the extent not preempted by federal law, this Supplement shall be interpreted and construed in accordance with the laws of the State of Ohio (determined without regard to choice of laws principles).

IT WITNESS WHEREOF, The Kroger Co. has caused this Deferred Compensation Supplement to The Kroger Co. 2008 Long-Term Bonus Plan to be executed as of the 26th day of February, 2008.

THE KROGER CO.
By:	/s/ Paul Heldman
Title: Executive Vice President, Secretary
and General Counsel

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DEFERRAL AGREEMENT

THIS FORM APPLIES ONLY TO DEFERRALS MADE WITH RESPECT TO LONG-TERM BONUSES THAT MAY BECOME PAYABLE UNDER THE 2008 LONG-TERM BONUS PLAN

PARTICIPANT:

DATE OF BIRTH:

SOCIAL SECURITY NO.:

CURRENT ADDRESS:

DEFERRAL ELECTION (FISCAL YEARS 2008-2011)

The Long-Term Bonus that may become payable to you under The Kroger Co. 2008 Long-Term Bonus Plan (the “Plan”), which includes the Company’s 2008-2011 Fiscal Years, may be deferred under the Deferred Compensation Supplement to the Plan (the “Supplement”), provided the Company receives your properly completed Deferral Agreement no later than six months prior to the end of fiscal year 2011.

oI elect to defer all or a portion of the Long-Term Bonus that may become payable to me under the Plan, as designated below. I understand that this deferral election is irrevocable, and is subject to all of the terms of the Plan and Supplement.

DEFERRAL AMOUNT:
%	(enter percentage of Long-Term Bonus to be deferred)

PAYMENT ELECTION FOR AMOUNTS DEFERRED

I elect to have the amount of my Long-Term Bonus (Fiscal Years 2008-2011) deferred, and earnings on such amounts, paid as follows:

oImmediate Lump Sum Payment.  Lump sum payment after the first day of the calendar quarter that occurs six (6) months after my termination of employment.

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oDeferred (Next Year) Lump Sum Payment.  Lump sum payment after the later of (i) the first day of the calendar year following my termination of employment or (ii) six (6) months after my termination of employment.

oImmediate (Next Quarter) Installment Payments.  Quarterly installment payments of                          payments [specify number of payments - no less than four (4) and no more than forty (40)] commencing after the first day of the calendar quarter that occurs six (6) months after my termination of employment.

oDeferred (Retirement Age) Installment Payments.  Quarterly installment payments of                          payments [specify number of payments - no less than four (4) and no more than forty (40)] commencing after the first day of the calendar quarter that occurs six (6) months following the later of (i) my termination of employment or (ii) my                      birthday [specify birthday for which payments shall commence].

DESIGNATION OF BENEFICIARY

Pursuant to the Supplement to the Plan, I designate the following person(s) to receive payment of the amounts in my Account that are attributable to deferrals (and earnings on such deferrals) in the event of my death prior to complete distribution of such amounts.  I understand that if I do not have a valid Designation of Beneficiary on file, the amounts credited to my Account that are attributable to deferrals (and earnings on such deferrals) shall be distributed to the executor or administrator of my estate.

Beneficiary(ies)	Percentage of Death Benefit:
		%
		%
		%
TOTAL:		% (must equal 100%)

Please attach any contingent Designated Beneficiary provisions.

PAYMENT TO DESIGNATED BENEFICIARY

I elect to have the amounts in my Account that are attributable to deferrals (and earnings on such deferrals) that are unpaid as of the date of my death, paid to my Designated Beneficiary as follows:

oImmediate (Next Quarter) Lump Sum Payment.  Lump sum payment after the first day of the calendar quarter following the date of my death.

oDeferred (Next Year) Lump Sum Payment.  Lump sum payment after the first day of the calendar year following the date of my death.

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oImmediate (Next Quarter) Installment Payments.  Quarterly installment payments of                          payments [specify number of payments - no less than four (4) and no more than forty (40)] commencing after the first day of the calendar quarter following the date of my death.

PARTICIPANT’S ACKNOWLEDGEMENTS

I acknowledge that I have received a copy of the Plan and Supplement, and agree that the deferral of any portion of my Long-Term Bonus that may become payable to me under the Plan is subject to the terms and conditions of the Plan and Supplement.

Participant’s Signature

Participant’s Name (Printed)

Date

	Committee
2008 Long-Term Bonus Plan	By:
Deferred Compensation Supplement
Deferral Agreement
	Date:

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ALTERNATIVE REPORTING AND DISCLOSURE STATEMENT
FOR PENSION PLANS FOR CERTAIN SELECTED EMPLOYEES

To the Secretary of Labor:

In compliance with the requirements of the alternative method of reporting and disclosure under Part 1 of Title I of the Employee Retirement Income Security Act of 1974 for unfunded or insured pension plans for a select group of management or highly compensated employees, specified in Department of Labor Regulations, 29 C.F.R. §2520.104-23, the following information is provided by the undersigned employer.

Name and Address of Employer:	The Kroger Co.
	1014 Vine Street
	Cincinnati, Ohio 45202-1141
Employer Identification Number:	31-0345740

The Employer maintains a plan (or plans) primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.

Number of Plans and

Participants in Each

Plan:	Plan covering                      Employees (or
	Plans covering                                   and
	Employees, respectively.)

Dated                                                       , 20    .

THE KROGER CO.

By:

Title:

This form should be mailed to:

Top Hat Plan Exemption

Employee Benefits Security Administration

Room N-1513

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

(Send certified mail to evidence filing requirement satisfied)

18

EX-12.1

EXHIBIT 12.1

SCHEDULE OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE KROGER CO. AND CONSOLIDATED SUBSIDIARY COMPANIES FOR THE FIVE FISCAL YEARS ENDED FEBRUARY 2, 2008

	February 2, 2008 (52 weeks)			February 3, 2007 (53 weeks)			January 28, 2006 (52 weeks)			January 29, 2005 (52 weeks)			January 31, 2004 (52 weeks)
Earnings:
Earnings before tax expense	$	1,827		$	1,748		$	1,525		$	286		$	739
Fixed charges	855			870			895			950			983
Capitalized interest	(14		)	(13		)	(7		)	(5		)	(5		)
Pre-tax earnings before fixed charges	$	2,668		$	2,605		$	2,413		$	1,231		$	1,717
Fixed charges:
Interest	$	488		$	501		$	518		$	562		$	609
Portion of rental Payments deemed to be interest	367			370			377			388			374
Total fixed charges	$	855		$	871		$	895		$	950		$	983
Ratio of earnings to fixed charges	3.1			3.0			2.7			1.3			1.7

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE KROGER CO.

Name	State of Incorporation/Organization
Agri-Products, Inc.	Arkansas
Bluefield Beverage Company	Ohio
Country Oven, Inc.	Ohio
Dillon Companies, Inc.	Kansas
Also Doing Business As:
Baker’s Supermarkets	N/A*
City Market	N/A*
Dillon Food Stores	N/A*
Dillon Stores Division, Inc.	N/A*
Dillon Warehouse	N/A*
Food 4 Less	N/A*
Gerbes Supermarkets	N/A*
Inter-American Products	N/A*
King Soopers	N/A*
Peyton’s Fountain	N/A*
Dotto, Inc.	Indiana
Embassy International, Inc.	Ohio
Fred Meyer, Inc.	Delaware
Henpil, Inc.	Texas
(Subsidiary of Rocket Newco, Inc.)
Inter-American Foods, Inc.	Ohio
Inter-American Products, Inc.	Ohio
J.V. Distributing, Inc.	Michigan
Kessel FP, L.L.C.	Michigan (limited liability company)
Kessel RCD, L.L.C.	Michigan (limited liability company)
Kessel Saginaw, L.L.C.	Michigan (limited liability company)
KRGP Inc.	Ohio
KRLP Inc.	Ohio
The Kroger Co. of Michigan	Michigan
Also Doing Business As:
The Apple Orchard Fruit Market	N/A*
Bi-Lo Discount Foods	N/A*
Inter-American Products	N/A*
Kessel Pharmacies	N/A*
Kessel Food Markets	N/A*
Kroger Fresh Fare	N/A*
World of Videos, Movies and Munch More	N/A*
Kroger Dedicated Logistics Co.	Ohio
Kroger Group Cooperative, Inc.	Ohio
Also Doing Business As:
Kroger Group, Inc.	N/A*
KGC, Inc.	N/A*
Kroger Limited Partnership I	Ohio (limited partnership)
Also Doing Business As:
Chef’s Choice Catering	N/A*
Foods Plus	N/A*
Hilander Food Stores	N/A*
JayC Food Stores	N/A*
Kentucky Distribution Center	N/A*
Kroger Food Stores	N/A*

Owen’s Supermarket	N/A*
Peyton’s Southeastern	N/A*
Queen City Centre	N/A*
Ruler Discount Foods	N/A*
Kroger Limited Partnership II	Ohio (limited partnership)
Also Doing Business As:
Country Oven Bakery	N/A*
Crossroad Farms Dairy	N/A*
Inter-American Products	N/A*
K. B. Specialty Foods	N/A*
Kenlake Foods	N/A*
Pace Dairy of Indiana	N/A*
Peyton’s Northern	N/A*
Winchester Farms Dairy	N/A*
Kroger Management Co.	Michigan
Kroger Prescription Plans, Inc.	Ohio
Kroger Texas L.P.	Ohio (limited partnership)
Also Doing Business As:
America’s Beverage Company	N/A*
Inter-American Products	N/A*
Kroger Kwik Shop	N/A*
Vandervoort Dairy Food Company	N/A*
Michigan Dairy, L.L.C.	Michigan (limited liability company)
Pace Dairy Foods Company	Ohio
Pay Less Super Markets, Inc.	Indiana
Peyton’s-Southeastern, Inc.	Tennessee
Also Doing Business As:
Peyton’s Mid-South Company	N/A*
Supermarket Merchandisers Co.	N/A*
Pontiac Foods, Inc.	South Carolina
Queen City Assurance, Inc.	Vermont
(Subsidiary of The Kroger Co. of Michigan)
RJD Assurance, Inc.	Vermont
Rocket Newco, Inc.	Texas
Southern Ice Cream Specialties, Inc.	Ohio
Topvalco, Inc.	Ohio
Vine Court Assurance Incorporated	Vermont
Subsidiaries of Dillon Companies, Inc.
Dillon Real Estate Co., Inc.	Kansas
Junior Food Stores of West Florida, Inc.	Florida
Also Doing Business As:
Tom Thumb Food Stores	N/A*
Kwik Shop, Inc.	Kansas
Mini Mart, Inc.	Wyoming
Also Doing Business As:
Loaf ‘N Jug, Inc.	N/A*
Quik Stop Markets, Inc.	California
THGP Co., Inc.	Pennsylvania
THLP Co., Inc.	Pennsylvania
Turkey Hill, L.P.	Pennsylvania (limited partnership)
Also Doing Business As:
Inter-American Products	N/A*
Turkey Hill Dairy, Inc.	N/A*
Turkey Hill Minit Markets	N/A*

Subsidiaries of Fred Meyer, Inc.
Fred Meyer Stores, Inc.	Ohio
(Subsidiary of Fred Meyer, Inc.)
Also Doing Business as:
FM Fuel Stop	N/A*
Fred Meyer	N/A*
Inter-American Products	N/A*
Quality Food Centers	N/A*
Swan Island Dairy	N/A*
CB&S Advertising Agency, Inc.	Oregon
(Subsidiary of Fred Meyer Stores, Inc.)
Distribution Trucking Company	Oregon
(Subsidiary of Fred Meyer Stores, Inc.)
FM, Inc.	Utah
(Subsidiary of Fred Meyer Stores, Inc.)
Fred Meyer (HK) Limited	Hong Kong
(Subsidiary of Fred Meyer Stores, Inc.)
Fred Meyer Jewelers, Inc.	California
(Subsidiary of Fred Meyer Stores, Inc.)
Also Doing Business As:
Littman Jewelers	N/A*
Barclay Jewelers	N/A*
FMJ, Inc.	Delaware
(Subsidiary of Fred Meyer Jewelers, Inc.)
Also Doing Business As:
Fred Meyer Jewelers Mail Order	N/A*
fredmeyerjewelers.com	N/A*
littmanjewelers.com	N/A*
Smith’s Food & Drug Centers, Inc.	Ohio
(Subsidiary of Fred Meyer, Inc.)
Also Doing Business As:
Fry’s Food & Drug Stores	N/A*
Fry’s Marketplace	N/A*
Peyton’s Phoenix	N/A*
Smith’s Food & Drug Stores	N/A*
Smith’s Food King	N/A*
Smith’s Fuel Centers	N/A*
Smith’s Marketplace	N/A*
Smith’s Beverage of Wyoming	Wyoming
(Subsidiary of Smith’s Food & Drug Centers, Inc.)
Healthy Options Inc.	Delaware
(Subsidiary of Fred Meyer, Inc.)
Also Doing Business As:
Postal Prescription Services	N/A*
Hughes Markets, Inc.	California
(Subsidiary of Fred Meyer Stores, Inc.)
Hughes Realty, Inc.	California
(Subsidiary of Hughes Markets, Inc.)
Second Story, Inc.	Washington
(Subsidiary of Fred Meyer Stores, Inc.)
Food 4 Less Holdings, Inc.	Delaware
(Subsidiary of Fred Meyer, Inc.)
Ralphs Grocery Company	Ohio
(Subsidiary of Food 4 Less Holdings, Inc.)
Also Doing Business As:

Food 4 Less	N/A*
Food 4 Less Midwest	N/A*
Foods Co.	N/A*
Inter-American Products	N/A*
Ralphs Fresh Fare	N/A*
Ralphs Marketplace	N/A*
Cala Co.	Delaware
(Subsidiary of Ralphs Grocery Company)
Bay Area Warehouse Stores, Inc.	California
(Subsidiary of Cala Co.)
Bell Markets, Inc.	California
(Subsidiary of Cala Co.)
Cala Foods, Inc.	California
(Subsidiary of Cala Co.)
Crawford Stores, Inc.	California
(Subsidiary of Ralphs Grocery Company)
F4L L.P.	Ohio (limited partnership)
Food 4 Less of Southern California, Inc.	Delaware
(Subsidiary of Ralphs Grocery Company)
Alpha Beta Company	California
(Subsidiary of Food 4 Less of Southern California, Inc.)
Food 4 Less GM, Inc.	California
(Subsidiary of Alpha Beta Company)
Food 4 Less of California, Inc.	California
(Subsidiary of Alpha Beta Company)
Food 4 Less Merchandising, Inc.	California
(Subsidiary of Alpha Beta Company)

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-148216), S-4 (File No. 333-66961) and S-8 (File Nos. 33-38121, 33-38122, 33-53747, 33-55501, 333-27211, 333-78935, 333-89977, 333-91354, 333-106802, 333-126076, 333-138152, 333-106803 and 333-149991) of The Kroger Co. of our report dated April 1, 2008 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Cincinnati, Ohio

April 1, 2008

EX-24.1

EXHIBIT 24.1

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Reuben V. Anderson)

Reuben V. Anderson

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Robert D. Beyer)

Robert D. Beyer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(John L. Clendenin)

John L. Clendenin

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, her true and lawful attorneys-in-fact to sign and execute for and on her behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Susan J. Kropf)

Susan J. Kropf

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(David B. Lewis)

David B. Lewis

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(John T. LaMacchia)

John T. LaMacchia

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Don W. McGeorge)

Don W. McGeorge

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(W. Rodney McMullen)

W. Rodney McMullen

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Jorge P. Montoya)

Jorge P. Montoya

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Clyde R. Moore)

Clyde R. Moore

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, her true and lawful attorneys-in-fact to sign and execute for and on her behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Katherine D. Ortega)

Katherine D. Ortega

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, her true and lawful attorneys-in-fact to sign and execute for and on her behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Susan M. Phillips)

Susan M. Phillips

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Steven R. Rogel)

Steven R. Rogel

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(James A. Runde)

James A. Runde

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Ronald L. Sargent)

Ronald L. Sargent

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of THE KROGER CO. (the “Company”) hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 28^th day of March 2008.

(Bobby S. Shackouls)

Bobby S. Shackouls

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

The undersigned officer of THE KROGER CO. (the “Company”) does hereby severally make, constitute and appoint Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, I have hereunto set my hand.

(David B. Dillon)	March 28, 2008
David B. Dillon
Chairman, Chief Executive Officer and Director

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

The undersigned officer of THE KROGER CO. (the “Company”) does hereby severally make, constitute and appoint Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, I have hereunto set my hand.

(J. Michael Schlotman)	March 28, 2008
J. Michael Schlotman
Senior Vice President and Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

The undersigned officer of THE KROGER CO. (the “Company”) does hereby severally make, constitute and appoint Paul W. Heldman and Bruce M. Gack, or either of them, her true and lawful attorneys-in-fact to sign and execute for and on her behalf the Company’s annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable the Company to comply with said Act or the rules and regulations thereunder.

IN WITNESS WHEREOF, I have hereunto set my hand.

(M. Elizabeth Van Oflen)	March 28, 2008
M. Elizabeth Van Oflen
Vice President and Controller
And Principal Accounting Officer

EX-31.1

EXHIBIT 31.1

I, David B. Dillon, certify that:
1.	I have reviewed this annual report on Form 10-K of The Kroger Co.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
	a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   April 1, 2008	/s/ David B. Dillon
	David B. Dillon
	Chairman of the Board and
	Chief Executive Officer
	(principal executive officer)

EX-31.2

EXHIBIT 31.2

I, J. Michael Schlotman, certify that:
1.	I have reviewed this annual report on Form 10-K of The Kroger Co.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
	a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  April 1, 2008	/s/ J. Michael Schlotman
	J. Michael Schlotman
	Senior Vice President and Chief Financial Officer
	(principal financial officer)

EX-32.1

EXHIBIT 32.1

NOTE: The referenced officers, based on their knowledge, furnish the following certification, pursuant to 18 U.S.C. Section 1350.

We, David B. Dillon, Chief Executive Officer, and J. Michael Schlotman, Senior Vice President and Chief Financial Officer, of The Kroger Co. (the “Company”), do hereby certify in accordance with 18 U.S.C. Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Annual Report on Form 10-K of the Company for the period ending February 2, 2008 (the “Periodic Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or 78o(d)); and
2.	The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  April 1, 2008	/s/ David B. Dillon
	David B. Dillon
	Chairman of the Board and Chief Executive Officer
	/s/ J. Michael Schlotman
	J. Michael Schlotman
	Senior Vice President and Chief Financial Officer

A signed original of this written statement as required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to The Kroger Co., and will be retained by The Kroger Co. and furnished to the SEC or its staff upon request.