Below is selected financial information from The Kroger Co.'s FY 2018 10-K. Kroger values its inventory using LIFO. Below you are asked to adjust the balance sheet for a hypothetical conversion to FIFO and analyze this change. Balance Sheet Balance Sheet as of Jan-30-2016 Jan-28-2017 USD Feb-03-2018 USD USD a. 2016 2017 2018 Currency ASSETS Cash And Equivalents Total Cash & ST Investments 322.0 347.0 277.0 277.0 322.0 347.0 Change in inventories Change in tax liability Change in retained earnings 1,734.0 1,637.0 Accounts Receivable Total Recelvables 1,649.0 1,649.0 1,734.0 1,637.0 b. Would Kroger's income be higher or lower if it were to switch to FIFO? 6,561.0 6,533.0 Inventory Prepaid Exp Other Current Assets Total Current Assets 6,168.0 790.0 9230 835.0 898.0 9100 1.765.0 9,892.0 10,340.0 11,117.0 c. Why might Kroger (or any company) choose to use LIFO? Gross Property, Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment 37,667.0 (18,048.0) 19,619.0 40,588.0 (19,572.0) 21,016.0 41,731.0 (20.660.0) 21,071.0 218.0 129.0 2,724.0 1,053.0 3,031.0 1,1530 614.0 2.925.0 1,100.0 Long-term Investments Goodwill Other Intangibles Loans Receivable Long-Term Other Long-Term Assets Total Assets 145.0 170.0 182.0 565.0 335.0 200.0 33.897.0 36,505.0 37,197.0 LIABILITIES Accounts Payable Accrued Exp. Curr. Port of LT Debt Curr. Port. of Leases Def. Tax Liability. Curr. 5,728.0 1.680.0 2,318.0 5,818.0 1,500.0 2.197.0 5,858.0 1,363.0 3,509.0 52.0 55.0 51.0 221.0 251.0 Other Current Liabilities 2,972.0 3,039.0 3,416.0 ----- ----- 221.0 251.0 1 Def. Tax Liability, Curr. Other Current Liabilities 5 Total Current Liabilities 2,972.0 3,039.0 3,416.0 12,971.0 12,860.0 14,197.0 9,105.0 11,279.0 11,126.0 707.0 631.0 751.0 3 Long-Term Debt Long-Term Leases Pension & Other Post-Retire Benefits 1 Def. Tax Liability, Non-Curr. Other Non-Current Liabilities 1,380.0 1,524.0 792.0 1,752.0 1,927.0 1,568.0 1,705.0 1,260.0 27,099.0 1,651.0 29,795.0 B Total Liabilities 30,292.0 1,918.0 1,918.0 1,918.0 2.980.0 3,161.0 1 5 Common Stock Additional Paid In Capital 7 Retained Earnings 3 Treasury Stock Comprehensive Inc. and Other Total Common Equity 14,011.0 17.007.0 (11,409.0) (680.0) 6,820.0 3,070.0 15,543.0 (13,118.0) (715.0) 6,698.0 (14,684.0) (471.0) 6,931.0 1 Minority Interest (22.0) 12.0 (26.0) 4 Total Equity 6,798.0 6,710.0 6,905.0 Total Liabilities And Equity 33.897.0 36,505.0 37.197.0 962.5 914.2 854.1 967.0 924.0 870.0 $7.05 $7.25 $7.97 3,043.0 2,514.0 S2.72 2,906.0 $3.34 $3.15 Supplemental Items Total Shares Out. on Filing Date Total Shares Out. on Balance Sheet Date 1 Book Value/Share Tangible Book Value 3 Tangible Book Value/Share Total Debt 5 Net Debt Debt Equiv. of Unfunded Proj. 5 Benefit Obligation 7 Debt Equivalent Oper. Leases 3 Total Minority Interest Inventory Method 14,085.0 15,590.0 12,106.0 11,829.0 1,167.0 13,763.0 1,318.0 15,243.0 620.0 7,048.0 5,784.0 (22.0) LIFO 12.0 7,288.0 (26.0) LIFO LIFO LIFO Reserve 1 2720 1 291 0 1 2480 962.5 914.2 854.1 Supplemental Items Total Shares Out. on Filing Date Total Shares Out. on Balance Sheet Date Book Value/Share 967.0 924.0 870.0 $7.05 $7.25 $7.97 3,043.0 2,514.0 2,906.0 Tangible Book Value Tangible Book Value/Share $3.15 $2.72 $3.34 Total Debt 14,085.0 12,106.0 11,829.0 1,167.0 15,590.0 15,243.0 Net Debt 13,763.0 1,318.0 620.0 7,048.0 Debt Equiv. of Unfunded Proj. Benefit Obligation Debt Equivalent Oper. Leases Total Minority Interest Inventory Method LIFO Reserve Other Inventory Accounts Land 5,784.0 (22.0) LIFO 12.0 7,288.0 (26.0) LIFO LIFO 1,291.0 7,852.0 3,197.0 1,272.0 7,440.0 2,997.0 10,524.0 12,520.0 2,115.0 8,710.0 11,643.0 13,495.0 1,248.0 7,781.0 3,201.0 12,072.0 13,635.0 2,050.0 9,773.0 449,000 1,000.0 (354.0) 1,979.0 Buildings Machinery Construction in Progress Leasehold Improvements Full Time Employees Assets under Cap. Lease, Gross Assets under Cap. Lease, Accum. Depr. Filing Date Restatement Type 9,342.0 431,000 443,000 801.0 932.0 (293.0) (330.0) Apr-18-2018 Apr-02-2019 Apr-01-2020 NCA NC NC calculation Tune DIID DIID DI ID 5 Income Statement For the Fiscal Period Ending 12 months Jan-30-2016 12 months Jan-28-2017 Reclassified 12 months Feb-03-2018 B Currency USD USD USD Revenue 109,830.0 115,337.0 123,280.0 Other Revenue Total Revenue 109,830.0 115,337.0 123,280.0 84,817.0 95.104.0 Cost Of Goods Sold Gross Profit 88,785.0 26,552.0 25,013.0 28,176.0 19,302.0 20,750.0 23,290.0 2,089.0 2,340.0 2,436.0 21,391.0 23,090.0 25,726.0 3,622.0 3,462.0 2,450.0 (482.0) (522.0) (601.0) (482.0) (522.0) (601.0) Selling General & Admin Exp. B R&D Exp. Depreciation & Amort. o Other Operating Expense/Income) 1 2 Other Operating Exp., Total 3 4 Operating Income 5 6 Interest Expense z Interest and Invest. Income 8 Net Interest Exp. 9 o Other Non-Operating Inc. (Exp.) 1 EBT Excl. Unusual Items 2 3 Restructuring Charges 4 Impairment of Goodwill 5 Asset Writedown 6 Other Unusual Items 7 EBT Incl. Unusual Items 8 9 Income Tax Expense 0 Earnings from Cont. Ops. 3,140.0 2,940.0 1,849.0 (184.0) (110.0) (71.0) (46.0) (26.0) 3,094.0 2,914.0 1,484.0 957.0 1,045.0 2,049.0 (405.0) 1,889.0 1,957.0 1 $0.41 $0.47 $0.5 Dividends per Share Payout Ratio % 18.9% 21.7% 23.2% Supplemental Items EBITDA 5,762.0 5,865.0 4,945.0 EBITA 3,673.0 3,525.0 2,509.0 2,450.0 EBIT 3,462.0 EBITDAR 3,622.0 6,485.0 33.8% 6,746.0 5,856.0 Effective Tax Rate % 32.8% 32.9% Current Domestic Taxes 760.0 772.0 324.0 Total Current Taxes 760.0 772.0 324.0 Deferred Domestic Taxes 285.0 185.0 (729.0) (729.0) Total Deferred Taxes 285.0 185.0 1,952.5 1,855.5 1,173.6 9.0 NA NA 38.0 24.0 536.0 Normalized Net Income Interest Capitalized - Non-Cash Pension Expense Filing Date Restatement Type Calculation Type Apr-18-2018 Apr-02-2019 Apr-01-2020 NCA NC RC REP REP REP 679.0 717.0 707.0 679.0 717.0 707.0 - Supplemental Operating Expense Items Advertising Exp. Selling and Marketing Exp. Net Rental Exp. Imputed Oper. Lease Interest Exp. Imputed Oper. Lease Depreciation 723.0 881.0 911.0 239.2 280.9 295.2 483.8 600.1 615.8 165.0 141.0 151.0 Stock-Based Comp., Unallocated Stock-Based Comp., Total 165.0 141.0 151.0 2,049.0 1,957.0 1,889.0 18.0 18.0 (10.0) 2.039.0 1,975.0 1,907.0 18.0 16.0 17.0 2,021.0 1.959.0 1,890.0 2,021.0 1,959.0 1,890.0 1 2 Earnings of Discontinued Ops. 3 Extraord. Item & Account Change -4 Net Income to Company -5 6 Minority Int. in Earnings 7 Net Income 8 9 Pref. Dividends and Other Adj. -0 1 NI to Common Incl Extra Items -2 NI to Common Excl. Extra Items -3 4 Per Share Items -5 Basic EPS 6 Basic EPS Excl. Extra Items -7 Weighted Avg. Basic Shares Out. 8 -9 Diluted EPS Lo Diluted EPS Excl. Extra Items -1 Weighted Avg. Diluted Shares Out. -2 -3 Normalized Basic EPS -4 Normalized Diluted EPS -5 -6 Dividends per Share -7 Payout Ratio % -8 -9 Supplemental Items $2.09 $2.08 $2.11 2.09 2.08 2.11 966.0 942.0 895.0 $2.06 $2.05 $2.09 2.06 2.05 2.09 980.0 958.0 904.0 S2.02 S1.97 $1.31 1.99 1.94 1.3 $0.41 $0.47 $0.5 18.9% 21.7% 23.2% 5,762.0 5,865.0 4,945.0 2,509.0 -O EBITDA -1 EBITA 2 EBIT -3 EBITDAR 3,673.0 3,622.0 3,525.0 3,462.0 2,450.0 5,856.0 6,485.0 33.8% 6,746.0 32.8% 772.0 32.9% 760.0 324.0 -4 Effective Tax Rate % -5 Current Domestic Taxes 6 Total Current Taxes -7 Deferred Domestic Taxes -8 Total Deferred Taxes 760.0 772.0 324.0 285.0 185.0 (729.0) (729.0) 285.0 185.0 Below is selected financial information from The Kroger Co.'s FY 2018 10-K. Kroger values its inventory using LIFO. Below you are asked to adjust the balance sheet for a hypothetical conversion to FIFO and analyze this change. Balance Sheet Balance Sheet as of Jan-30-2016 Jan-28-2017 USD Feb-03-2018 USD USD a. 2016 2017 2018 Currency ASSETS Cash And Equivalents Total Cash & ST Investments 322.0 347.0 277.0 277.0 322.0 347.0 Change in inventories Change in tax liability Change in retained earnings 1,734.0 1,637.0 Accounts Receivable Total Recelvables 1,649.0 1,649.0 1,734.0 1,637.0 b. Would Kroger's income be higher or lower if it were to switch to FIFO? 6,561.0 6,533.0 Inventory Prepaid Exp Other Current Assets Total Current Assets 6,168.0 790.0 9230 835.0 898.0 9100 1.765.0 9,892.0 10,340.0 11,117.0 c. Why might Kroger (or any company) choose to use LIFO? Gross Property, Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment 37,667.0 (18,048.0) 19,619.0 40,588.0 (19,572.0) 21,016.0 41,731.0 (20.660.0) 21,071.0 218.0 129.0 2,724.0 1,053.0 3,031.0 1,1530 614.0 2.925.0 1,100.0 Long-term Investments Goodwill Other Intangibles Loans Receivable Long-Term Other Long-Term Assets Total Assets 145.0 170.0 182.0 565.0 335.0 200.0 33.897.0 36,505.0 37,197.0 LIABILITIES Accounts Payable Accrued Exp. Curr. Port of LT Debt Curr. Port. of Leases Def. Tax Liability. Curr. 5,728.0 1.680.0 2,318.0 5,818.0 1,500.0 2.197.0 5,858.0 1,363.0 3,509.0 52.0 55.0 51.0 221.0 251.0 Other Current Liabilities 2,972.0 3,039.0 3,416.0 ----- ----- 221.0 251.0 1 Def. Tax Liability, Curr. Other Current Liabilities 5 Total Current Liabilities 2,972.0 3,039.0 3,416.0 12,971.0 12,860.0 14,197.0 9,105.0 11,279.0 11,126.0 707.0 631.0 751.0 3 Long-Term Debt Long-Term Leases Pension & Other Post-Retire Benefits 1 Def. Tax Liability, Non-Curr. Other Non-Current Liabilities 1,380.0 1,524.0 792.0 1,752.0 1,927.0 1,568.0 1,705.0 1,260.0 27,099.0 1,651.0 29,795.0 B Total Liabilities 30,292.0 1,918.0 1,918.0 1,918.0 2.980.0 3,161.0 1 5 Common Stock Additional Paid In Capital 7 Retained Earnings 3 Treasury Stock Comprehensive Inc. and Other Total Common Equity 14,011.0 17.007.0 (11,409.0) (680.0) 6,820.0 3,070.0 15,543.0 (13,118.0) (715.0) 6,698.0 (14,684.0) (471.0) 6,931.0 1 Minority Interest (22.0) 12.0 (26.0) 4 Total Equity 6,798.0 6,710.0 6,905.0 Total Liabilities And Equity 33.897.0 36,505.0 37.197.0 962.5 914.2 854.1 967.0 924.0 870.0 $7.05 $7.25 $7.97 3,043.0 2,514.0 S2.72 2,906.0 $3.34 $3.15 Supplemental Items Total Shares Out. on Filing Date Total Shares Out. on Balance Sheet Date 1 Book Value/Share Tangible Book Value 3 Tangible Book Value/Share Total Debt 5 Net Debt Debt Equiv. of Unfunded Proj. 5 Benefit Obligation 7 Debt Equivalent Oper. Leases 3 Total Minority Interest Inventory Method 14,085.0 15,590.0 12,106.0 11,829.0 1,167.0 13,763.0 1,318.0 15,243.0 620.0 7,048.0 5,784.0 (22.0) LIFO 12.0 7,288.0 (26.0) LIFO LIFO LIFO Reserve 1 2720 1 291 0 1 2480 962.5 914.2 854.1 Supplemental Items Total Shares Out. on Filing Date Total Shares Out. on Balance Sheet Date Book Value/Share 967.0 924.0 870.0 $7.05 $7.25 $7.97 3,043.0 2,514.0 2,906.0 Tangible Book Value Tangible Book Value/Share $3.15 $2.72 $3.34 Total Debt 14,085.0 12,106.0 11,829.0 1,167.0 15,590.0 15,243.0 Net Debt 13,763.0 1,318.0 620.0 7,048.0 Debt Equiv. of Unfunded Proj. Benefit Obligation Debt Equivalent Oper. Leases Total Minority Interest Inventory Method LIFO Reserve Other Inventory Accounts Land 5,784.0 (22.0) LIFO 12.0 7,288.0 (26.0) LIFO LIFO 1,291.0 7,852.0 3,197.0 1,272.0 7,440.0 2,997.0 10,524.0 12,520.0 2,115.0 8,710.0 11,643.0 13,495.0 1,248.0 7,781.0 3,201.0 12,072.0 13,635.0 2,050.0 9,773.0 449,000 1,000.0 (354.0) 1,979.0 Buildings Machinery Construction in Progress Leasehold Improvements Full Time Employees Assets under Cap. Lease, Gross Assets under Cap. Lease, Accum. Depr. Filing Date Restatement Type 9,342.0 431,000 443,000 801.0 932.0 (293.0) (330.0) Apr-18-2018 Apr-02-2019 Apr-01-2020 NCA NC NC calculation Tune DIID DIID DI ID 5 Income Statement For the Fiscal Period Ending 12 months Jan-30-2016 12 months Jan-28-2017 Reclassified 12 months Feb-03-2018 B Currency USD USD USD Revenue 109,830.0 115,337.0 123,280.0 Other Revenue Total Revenue 109,830.0 115,337.0 123,280.0 84,817.0 95.104.0 Cost Of Goods Sold Gross Profit 88,785.0 26,552.0 25,013.0 28,176.0 19,302.0 20,750.0 23,290.0 2,089.0 2,340.0 2,436.0 21,391.0 23,090.0 25,726.0 3,622.0 3,462.0 2,450.0 (482.0) (522.0) (601.0) (482.0) (522.0) (601.0) Selling General & Admin Exp. B R&D Exp. Depreciation & Amort. o Other Operating Expense/Income) 1 2 Other Operating Exp., Total 3 4 Operating Income 5 6 Interest Expense z Interest and Invest. Income 8 Net Interest Exp. 9 o Other Non-Operating Inc. (Exp.) 1 EBT Excl. Unusual Items 2 3 Restructuring Charges 4 Impairment of Goodwill 5 Asset Writedown 6 Other Unusual Items 7 EBT Incl. Unusual Items 8 9 Income Tax Expense 0 Earnings from Cont. Ops. 3,140.0 2,940.0 1,849.0 (184.0) (110.0) (71.0) (46.0) (26.0) 3,094.0 2,914.0 1,484.0 957.0 1,045.0 2,049.0 (405.0) 1,889.0 1,957.0 1 $0.41 $0.47 $0.5 Dividends per Share Payout Ratio % 18.9% 21.7% 23.2% Supplemental Items EBITDA 5,762.0 5,865.0 4,945.0 EBITA 3,673.0 3,525.0 2,509.0 2,450.0 EBIT 3,462.0 EBITDAR 3,622.0 6,485.0 33.8% 6,746.0 5,856.0 Effective Tax Rate % 32.8% 32.9% Current Domestic Taxes 760.0 772.0 324.0 Total Current Taxes 760.0 772.0 324.0 Deferred Domestic Taxes 285.0 185.0 (729.0) (729.0) Total Deferred Taxes 285.0 185.0 1,952.5 1,855.5 1,173.6 9.0 NA NA 38.0 24.0 536.0 Normalized Net Income Interest Capitalized - Non-Cash Pension Expense Filing Date Restatement Type Calculation Type Apr-18-2018 Apr-02-2019 Apr-01-2020 NCA NC RC REP REP REP 679.0 717.0 707.0 679.0 717.0 707.0 - Supplemental Operating Expense Items Advertising Exp. Selling and Marketing Exp. Net Rental Exp. Imputed Oper. Lease Interest Exp. Imputed Oper. Lease Depreciation 723.0 881.0 911.0 239.2 280.9 295.2 483.8 600.1 615.8 165.0 141.0 151.0 Stock-Based Comp., Unallocated Stock-Based Comp., Total 165.0 141.0 151.0 2,049.0 1,957.0 1,889.0 18.0 18.0 (10.0) 2.039.0 1,975.0 1,907.0 18.0 16.0 17.0 2,021.0 1.959.0 1,890.0 2,021.0 1,959.0 1,890.0 1 2 Earnings of Discontinued Ops. 3 Extraord. Item & Account Change -4 Net Income to Company -5 6 Minority Int. in Earnings 7 Net Income 8 9 Pref. Dividends and Other Adj. -0 1 NI to Common Incl Extra Items -2 NI to Common Excl. Extra Items -3 4 Per Share Items -5 Basic EPS 6 Basic EPS Excl. Extra Items -7 Weighted Avg. Basic Shares Out. 8 -9 Diluted EPS Lo Diluted EPS Excl. Extra Items -1 Weighted Avg. Diluted Shares Out. -2 -3 Normalized Basic EPS -4 Normalized Diluted EPS -5 -6 Dividends per Share -7 Payout Ratio % -8 -9 Supplemental Items $2.09 $2.08 $2.11 2.09 2.08 2.11 966.0 942.0 895.0 $2.06 $2.05 $2.09 2.06 2.05 2.09 980.0 958.0 904.0 S2.02 S1.97 $1.31 1.99 1.94 1.3 $0.41 $0.47 $0.5 18.9% 21.7% 23.2% 5,762.0 5,865.0 4,945.0 2,509.0 -O EBITDA -1 EBITA 2 EBIT -3 EBITDAR 3,673.0 3,622.0 3,525.0 3,462.0 2,450.0 5,856.0 6,485.0 33.8% 6,746.0 32.8% 772.0 32.9% 760.0 324.0 -4 Effective Tax Rate % -5 Current Domestic Taxes 6 Total Current Taxes -7 Deferred Domestic Taxes -8 Total Deferred Taxes 760.0 772.0 324.0 285.0 185.0 (729.0) (729.0) 285.0 185.0