NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in millions, except per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Registrant
The accompanying Condensed Consolidated Financial Statements of SUPERVALU INC. (“Supervalu”, the “Company”, “we”, “us”, or “our”) for the
second
quarters ended
September 8, 2018
and
September 9, 2017
are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary to present fairly the financial condition, results of operations and cash flows for such periods. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes in our Annual Report on Form 10-K for the fiscal year ended
February 24, 2018
. The results of operations for the
second
quarter ended
September 8, 2018
are not necessarily indicative of the results expected for the full year.
Accounting Policies
The summary of significant accounting policies is included in the Notes to Consolidated Financial Statements set forth in our Annual Report on Form 10-K for the fiscal year ended
February 24, 2018
. Certain footnote disclosures included in our consolidated financial statements have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.
Fiscal Year
Our fiscal years end on the last Saturday of February and contain either 52 or 53 weeks. References to the
second
quarter of fiscal
2019
and
2018
relate to the 12 week fiscal quarters ended
September 8, 2018
and
September 9, 2017
, respectively. References to fiscal
2019
and
2018
year-to-date relate to the
28
week fiscal periods ended
September 8, 2018
and
September 9, 2017
, respectively.
Use of Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Our banking arrangements allow us to fund outstanding checks when presented to the financial institution for payment. We fund all intraday bank balance overdrafts during the same business day. Checks outstanding in excess of bank balances create net book overdrafts, which are recorded in Accounts payable in the Condensed Consolidated Balance Sheets and are reflected as an operating activity in the Condensed Consolidated Statements of Cash Flows. As of
September 8, 2018
and
February 24, 2018
, we had net book overdrafts of
$144
and
$144
, respectively.
Inventories, Net
Inventories are valued at the lower of cost or market. Substantially all of our inventories consist of finished goods and a substantial portion of our inventories have a last-in, first-out (“LIFO”) reserve applied. Interim LIFO calculations are based on our estimates of expected year-end inventory levels and costs, as the actual valuation of inventory under the LIFO method is computed at the end of each year based on the inventory levels and costs at that time. If the first-in, first-out method had been used, Inventories, net would have been higher by approximately
$203
and
$199
at
September 8, 2018
and
February 24, 2018
, respectively. We recorded a LIFO charge of
$2
,
$1
,
$4
and
$2
for the
second
quarters ended
September 8, 2018
and
September 9, 2017
, and fiscal
2019
and
2018
year-to-date, respectively.
NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS
Recently Adopted Accounting Standards
In March 2018, the Financial Accounting Standards Board (the “FASB”) issued authoritative guidance under accounting standard update (“ASU”) 2018-05,
Income Taxes (Topic 740):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.
ASU 2018-05 allows for the recognition of provisional amounts in the event that the accounting is not complete and a reasonable estimate can be made for the impact of the Tax Cuts and Jobs Act (the “Tax Act”). The guidance allows for a measurement period of up to one year from the enactment date of the Tax Act to finalize the accounting related to the Tax Act. We adopted the SEC Staff Accounting Bulletin No. 118 when it was released in the fourth quarter of fiscal 2018. Refer to
Note 14—Income Taxes
for more information and disclosure related to this guidance.
In February 2018, the FASB issued authoritative guidance under ASU 2018-02,
Income Statement—Reporting Comprehensive Income (Topic 220)
:
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. ASU 2018-02 provides that the stranded tax effects in Accumulated other comprehensive income or loss resulting from the Tax Act may be reclassified to Retained earnings or Accumulated deficit. We early adopted this guidance in the first quarter of fiscal 2019. As a result of the adoption, we reclassified
$61
from Accumulated other comprehensive loss into Accumulated deficit for these stranded tax effects.
In March 2017, the FASB issued authoritative guidance under ASU 2017-07,
Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. ASU 2017-07 changes how benefit plan costs for defined benefit pension and other postretirement benefit plans are presented in the statement of operations. We adopted this guidance in the first quarter of fiscal 2019, which resulted in the reclassification of non-service cost components of net periodic benefit income, as disclosed in
Note 10—Benefit Plans
, to an other income and expense line titled “
Net periodic benefit income, excluding service cost
” in the Condensed Consolidated Statements of Operations. The following table summarizes the impacts of adopting ASU 2017-07:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
Year-To-Date Ended
|
|
September 9, 2017
(12 weeks)
|
|
September 9, 2017
(28 weeks)
|
|
As Previously Reported
|
|
Impact of ASU 2017-07 Adoption
|
|
As Recast
|
|
As Previously Reported
|
|
Impact of ASU 2017-07 Adoption
|
|
As Recast
|
Selling and administrative expenses
|
$
|
311
|
|
|
$
|
12
|
|
|
$
|
323
|
|
|
$
|
681
|
|
|
$
|
29
|
|
|
$
|
710
|
|
Operating earnings
|
$
|
29
|
|
|
$
|
(12
|
)
|
|
$
|
17
|
|
|
$
|
90
|
|
|
$
|
(29
|
)
|
|
$
|
61
|
|
Net periodic benefit income, excluding service cost
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
$
|
(12
|
)
|
|
$
|
—
|
|
|
$
|
(29
|
)
|
|
$
|
(29
|
)
|
In August 2016, the FASB issued authoritative guidance under ASU 2016-15,
Statement of Cash Flows (Topic 320): Classification of Certain Cash Receipts and Cash Payments.
ASU 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. We adopted this guidance in the first quarter of fiscal 2019. The adoption did not impact the presentation of our Condensed Consolidated Statements of Cash Flows.
In May 2014, the FASB issued authoritative guidance under ASU 2014-09,
Revenue from Contracts with Customers (Topic 606).
ASU 2014-09 supersedes existing revenue recognition requirements and provides a new comprehensive revenue recognition model that requires entities to recognize revenue to depict the transfer of promised goods or services to a customer at an amount that reflects the consideration entities expect to be entitled to receive in exchange for those goods or services. We adopted this guidance in the first quarter of fiscal 2019, as permitted by ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
. Our adoption includes updates as provided under ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net);
ASU 2016-10,
Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing;
ASU 2016-12,
Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients;
ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers;
and ASU 2017-14,
Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606).
We refer to these standards collectively as ASC 606, and our prior revenue recognition under Topic 605 as ASC 605. We adopted ASC 606 in the first quarter of fiscal 2019 by using the modified retrospective method.
The adoption of ASC 606 did not have a material effect on our results of operations, financial position, or cash flows. The identification of performance obligations, and the recognition of sales under those performance obligations, including the unit of accounting for such performance obligations, is consistent with our prior revenue recognition practice. The adoption of ASC 606 resulted in an insignificant change in our revenue recognition practices with respect to customer incentives, the timing of
transfer of control of product sales and the recognition of Retail advertising and loyalty programs. Under ASC 606, we now recognize incentives that do not have any repayment obligation over the expected term of the expected purchases related to such incentives. Historically, the majority of our customer contracts contained repayment provisions, which were accordingly amortized into net sales over the contract period. Under ASC 605, if the customer contract did not contain a repayment provision, the payment was recognized as contra revenue within Net sales in the period paid. Accordingly, on February 25, 2018 (the first day of fiscal 2019), we recognized an increase in Other assets of
$1
and a corresponding after-tax increase in Accumulated deficit of
$0
that resulted from the previous expensing of certain customer incentives related to contracts that did not contain a repayment provision.
Under ASC 606, we primarily recognize revenue upon shipment to our customer based on the nature of our contracts, which is generally consistent with our prior practice. We previously did not recognize revenue and the related cost of sales for product sales until they were delivered to our customers under the risk and rewards based guidance under ASC 605; however, under ASC 606, we now recognize revenue upon the shipment of product to our customers. On February 25, 2018 (the first day of fiscal 2019), we recognized a cumulative adjustment within Accumulated deficit of
$0
that had the effect of increasing Net sales, Cost of sales and Accounts receivable, and a corresponding decrease in Inventory, net of
$3
.
Under ASC 606, we have adjusted our accounting for certain advertising income and fuel rewards. Advertising income earned from our franchisees that participate in our Retail advertising program is now recognized as Net sales under ASC 606, rather than as a reduction of advertising expenses within Cost of sales under our prior ASC 605 revenue recognition practices. In addition, we now recognize loyalty program expense in the form of fuel rewards as a reduction of Net sales, rather than in Cost of sales under our prior ASC 605 revenue recognition practices. We recognized an increase to Net sales of
$1
and
$3
for the
second
quarter ended
September 8, 2018
and fiscal
2019
year-to-date, respectively, and corresponding decreases to Cost of sales related to the adoption of ASC 606 for our advertising income and fuel rewards.
Refer to
Note 3—Revenue Recognition
for additional information on our adoption of ASC 606.
Recently Issued Accounting Standards
In August 2018, the FASB issued authoritative guidance under ASU 2018-15,
Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.
ASU 2018-05 requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. We are required to adopt this new guidance in the first quarter of fiscal 2021. We have outstanding cloud computing arrangements and continue to incur costs that we believe would be required to be capitalized under ASU 2018-05. We are currently evaluating the potential impact of adoption of this standard on our consolidated financial statements.
In August 2018, the FASB issued authoritative guidance under ASU 2018-14,
Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.
ASU 2018-14 eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. We are required to adopt this guidance in the first quarter of fiscal 2021. We are currently evaluating the potential impact of the adoption of this standard on our consolidated financial statements.
In January 2017, the FASB issued authoritative guidance under ASU 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating step 2 of the goodwill impairment test. If a reporting unit fails step 1 of the goodwill impairment test, entities are no longer required to compute the implied fair value of goodwill following the same procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. ASU 2017-04 requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. We are required to adopt this new guidance in the first quarter of fiscal 2021. We are currently evaluating the potential impact of adoption of this standard on our consolidated financial statements.
In June 2016, the FASB issued authoritative guidance under ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace the current “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an
allowance. We are required to adopt this new guidance in the first quarter of fiscal 2021. We are currently evaluating the potential impact of adoption of this standard on our consolidated financial statements.
In February 2016, the FASB issued authoritative guidance under ASU 2016-02,
Leases (Topic 842)
. ASU 2016-02 provides new comprehensive lease accounting guidance that supersedes existing lease guidance. Upon adoption of ASU 2016-02, we will be required to recognize most leases on our balance sheet at the beginning of the earliest comparative period presented with a corresponding adjustment to stockholders’ equity. ASU 2016-02 requires us to capitalize most current operating lease obligations as right-of-use assets with a corresponding liability based on the present value of future operating lease obligations. Criteria for distinguishing leases between finance and operating are substantially similar to criteria for distinguishing between capital leases and operating leases in existing lease guidance. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. Topic 842 includes a number of optional practical expedients that we may elect to apply. Expanded disclosures with additional qualitative and quantitative information will also be required. The adoption will include updates as provided under ASU 2018-01,
Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842
and ASU 2018-10
, Codification Improvements to Topic 842, Leases
. We are required to adopt this new guidance in the first quarter of fiscal 2020. We are currently evaluating the potential impact of adoption of this standard on our consolidated financial statements and the additional transition method under ASU 2018-11, which allows us to recognize Topic 842’s cumulative effect within retained earnings in the period of adoption. For our off-balance sheet operating leases subject to capitalization under ASU 2016-02, other than those reserved for as a closed property, certain agreements that may be deemed leases under Topic 842 and the application of other provisions of Topic 842, refer to total operating lease obligations within
Note 9—Leases
.
NOTE 3—REVENUE RECOGNITION
Revenue Recognition Accounting Policy
We recognize revenue in an amount that reflects the consideration that is expected to be received for goods or services when our performance obligations are satisfied by transferring control of those promised goods or services to our customers. ASC 606 provides a five-step process to recognize revenue that requires judgment and estimates, including identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue as the performance obligation is satisfied.
Revenues from Wholesale product sales are recognized when control is transferred, which typically happens upon shipment. Typically, invoicing, shipping and customer receipt of Wholesale product occur on the same business day. Discounts and allowances provided to customers are recognized as a reduction in Net sales as control of the products is transferred to customers. We recognize freight revenue related to transportation of product sales when control of the product is transferred.
Revenues from Retail product sales are recognized at the point of sale upon customer check-out. Sales tax is excluded from Net sales. Limited rights of return exist with our customers due to the nature of the products we sell. Advertising income earned from our franchisees that participate in our Retail advertising program are recognized as Net sales. We recognize loyalty program expense in the form of fuel rewards as a reduction of Net sales.
Product sales
We enter into wholesale supply, customer, and rebate agreements that provide terms and conditions of our order fulfillment. Our supply and rebate agreements often specify levels of required minimum purchases in order to earn certain rebates or incentives. Certain contracts include rebates and other forms of variable consideration, including rebates provided up-front, over time or at the end of a contract term.
Certain customer agreements provide for the right to license one or more of our tradenames, such as FESTIVAL FOODS
®
, SENTRY
®
, COUNTY MARKET
®
, NEWMARKET
®
, FOODLAND
®
, JUBILEE
®
and SUPERVALU
®
. We do not separately charge for the right to license our tradenames. We believe that these tradenames are capable of being distinct, but are not capable of being distinct within the context of the contracts with our customers. Accordingly, we do not separately recognize revenue related to tradenames utilized by our customers. In addition, we enter into franchise agreements that separately charge our customers, who we also provide wholesale product supply to, for the right to use our CUB FOODS
®
tradename. We recognize franchise agreement revenue within Net sales.
We enter into distribution agreements with manufacturers to provide wholesale supply to the Defense Commissary Agency (“DeCA”) and other government agency locations. DeCA contracts with manufacturers to obtain grocery products for the commissary system. We contract with manufacturers to distribute products to the commissaries after being authorized by the manufacturers to be a military distributor to DeCA. We must adhere to DeCA’s delivery system procedures governing matters
such as product identification, ordering and processing, information exchange and resolution of discrepancies. DeCA identifies the manufacturer with which an order is to be placed, determines which distributor is contracted by the manufacturer for a particular commissary or exchange location, and then places a product order with that distributor that is covered under DeCA’s master contract with the applicable manufacturer. We supply product from our existing inventory, deliver it to the DeCA designated location, and bill the manufacturer for the product price plus a drayage fee. The manufacturer then bills DeCA under the terms of its master contract. We recognize revenue when control of the product passes to the DeCA designated location.
In transactions for goods or services where we engage third-parties to participate in our order fulfillment process, we evaluate whether we are the principal or an agent in the transaction. Our analysis considers whether we control the goods or services before they are transferred to our customer, including an evaluation of whether we have the ability to direct the use of, and obtain substantially all the remaining benefits from, the specified good or service before it is transferred to our customer. Agent transactions primarily reflect circumstances where we are not involved in order fulfillment or where we are involved in the order fulfillment but are not contractually obligated to purchase the related goods or services from vendors, and instead extend Wholesale customers credit by paying vendor trade accounts payable and do not control products prior to their sale. Under ASC 606, if we determine that we are acting in an agent capacity, we record transactions on a net basis. If we determine that we are acting in a principal capacity, we record transactions on a gross basis.
We also evaluate vendor sales incentives to determine whether they reduce our transaction price with our customers. Our analysis considers which party tenders the incentive, whether the incentive reflects a direct reimbursement from a vendor, whether the incentive is influenced by or negotiated in conjunction with any other incentive arrangements and whether the incentive is subject to an agency relationship with the vendor, whether expressed or implied. Typically, when vendor incentives are offered directly by vendors to our customers, they require the achievement of vendor-specified requirements to be earned by our customers, and are not negotiated by us or in conjunction with any other incentive agreement. In such case, where we do not control the direction or earning of these incentives, we do not reduce Net sales as part of our determination of the transaction price. In circumstances where the vendors provide us consideration to promote the sale of their goods and we determine the specific performance requirements for our customers to earn these incentives from us, we reduce Net sales for these customer incentives as part of our determination of the transaction price.
Customer incentives
We provide incentives to our Wholesale customers in various forms established under the applicable agreement, including advances, payments over time that are earned by achieving specified purchasing thresholds, and upon the passage of time. We typically recognize customer incentives within Other assets and Other current assets and we typically recognize customer incentive payments that are based on expected purchases over the term of the agreement within Net sales. To the extent that our transaction price for product sales includes variable consideration, such as certain of these customer incentives, we estimate the amount of variable consideration that should be included in the transaction price primarily by utilizing the expected value method. Variable consideration is included in the transaction price if it is probable that a significant future reversal of cumulative revenue under the agreement will not occur. We believe that there will not be significant changes to our estimates of variable consideration.
Customer incentive assets are reviewed for impairment when circumstances exist for which we no longer expect to recover the applicable customer incentives.
Professional services and equipment sales
We provide our Wholesale customers with professional services, including retail store support, advertising, couponing, e-commerce, network and data hosting solutions, training and certifications classes, and administrative back-office solutions. These Wholesale services typically contain single performance obligations for each respective service, in which case such services revenues are recognized when delivered. Advertising services primarily reflect the creation and distribution of circulars and other media that are recognized upon delivery to our customer. Wholesale equipment sales are recorded as direct sales to our customers when shipped, consistent with our recognition of product sales.
For Wholesale services that consist of multiple performance obligations, including any combination of our deliverables, we use our judgment to determine whether the promised deliverables are capable of being distinct and are in fact distinct. For our transition services agreements with each of Albertson’s LLC and New Albertsons’s, Inc. (collectively, the “TSA”) we provided, and for our professional services agreement with Moran Foods (the “Services Agreement”) we provide, a series of bundled back-office support activities that we recognize on an as-invoiced basis. TSA revenues have been invoiced based on the number of stores and distribution centers we service, which varied across the period of the contract. Services Agreement revenues are recognized based on the monthly invoices for services provided.
Disaggregation of Revenues
The following table details our revenue recognition for the periods presented by type of products and services and type of customer for each of our segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended September 8, 2018
|
|
Year-To-Date Ended September 8, 2018
|
Product or service type
|
|
Wholesale
|
|
Retail
|
|
Corporate
|
|
Total
|
|
Wholesale
|
|
Retail
|
|
Corporate
|
|
Total
|
Nonperishable grocery products
(1)
|
|
$
|
1,946
|
|
|
$
|
348
|
|
|
$
|
—
|
|
|
$
|
2,294
|
|
|
$
|
4,563
|
|
|
$
|
831
|
|
|
$
|
—
|
|
|
$
|
5,394
|
|
Perishable grocery products
(2)
|
|
843
|
|
|
230
|
|
|
—
|
|
|
1,073
|
|
|
1,977
|
|
|
551
|
|
|
—
|
|
|
2,528
|
|
Pharmacy products
|
|
—
|
|
|
67
|
|
|
—
|
|
|
67
|
|
|
—
|
|
|
157
|
|
|
—
|
|
|
157
|
|
Services revenue
|
|
30
|
|
|
3
|
|
|
25
|
|
|
58
|
|
|
71
|
|
|
8
|
|
|
65
|
|
|
144
|
|
Equipment sales
|
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
18
|
|
Other
|
|
9
|
|
|
2
|
|
|
—
|
|
|
11
|
|
|
22
|
|
|
4
|
|
|
—
|
|
|
26
|
|
Net sales
|
|
$
|
2,837
|
|
|
$
|
650
|
|
|
$
|
25
|
|
|
$
|
3,512
|
|
|
$
|
6,651
|
|
|
$
|
1,551
|
|
|
$
|
65
|
|
|
$
|
8,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retailers
|
|
$
|
2,734
|
|
|
$
|
—
|
|
|
$
|
25
|
|
|
$
|
2,759
|
|
|
$
|
6,409
|
|
|
$
|
—
|
|
|
$
|
65
|
|
|
$
|
6,474
|
|
Military
|
|
98
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
231
|
|
|
—
|
|
|
—
|
|
|
231
|
|
Individuals
|
|
—
|
|
|
645
|
|
|
—
|
|
|
645
|
|
|
—
|
|
|
1,539
|
|
|
—
|
|
|
1,539
|
|
Other
|
|
5
|
|
|
5
|
|
|
—
|
|
|
10
|
|
|
11
|
|
|
12
|
|
|
—
|
|
|
23
|
|
Net sales
|
|
$
|
2,837
|
|
|
$
|
650
|
|
|
$
|
25
|
|
|
$
|
3,512
|
|
|
$
|
6,651
|
|
|
$
|
1,551
|
|
|
$
|
65
|
|
|
$
|
8,267
|
|
|
|
(1)
|
Includes such items as dry goods, dairy, frozen foods, beverages, general merchandise, specialty products, home, health and beauty care and candy.
|
|
|
(2)
|
Includes such items as meat, produce, deli, bakery and floral.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended September 9, 2017
|
|
Year-To-Date Ended September 9, 2017
|
Product or service type
|
|
Wholesale
|
|
Retail
|
|
Corporate
|
|
Total
|
|
Wholesale
|
|
Retail
|
|
Corporate
|
|
Total
|
Nonperishable grocery products
(1)
|
|
$
|
1,847
|
|
|
$
|
361
|
|
|
$
|
—
|
|
|
$
|
2,208
|
|
|
$
|
3,596
|
|
|
$
|
849
|
|
|
$
|
—
|
|
|
$
|
4,445
|
|
Perishable grocery products
(2)
|
|
850
|
|
|
236
|
|
|
—
|
|
|
1,086
|
|
|
1,610
|
|
|
555
|
|
|
—
|
|
|
2,165
|
|
Pharmacy products
|
|
—
|
|
|
67
|
|
|
—
|
|
|
67
|
|
|
—
|
|
|
159
|
|
|
—
|
|
|
159
|
|
Services revenue
|
|
27
|
|
|
5
|
|
|
40
|
|
|
72
|
|
|
55
|
|
|
10
|
|
|
95
|
|
|
160
|
|
Equipment sales
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
Other
|
|
8
|
|
|
2
|
|
|
—
|
|
|
10
|
|
|
18
|
|
|
4
|
|
|
—
|
|
|
22
|
|
Net sales
|
|
$
|
2,738
|
|
|
$
|
671
|
|
|
$
|
40
|
|
|
$
|
3,449
|
|
|
$
|
5,294
|
|
|
$
|
1,577
|
|
|
$
|
95
|
|
|
$
|
6,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retailers
|
|
$
|
2,627
|
|
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
2,667
|
|
|
$
|
5,035
|
|
|
$
|
—
|
|
|
$
|
95
|
|
|
$
|
5,130
|
|
Military
|
|
106
|
|
|
—
|
|
|
—
|
|
|
106
|
|
|
249
|
|
|
—
|
|
|
—
|
|
|
249
|
|
Individuals
|
|
—
|
|
|
664
|
|
|
—
|
|
|
664
|
|
|
—
|
|
|
1,563
|
|
|
—
|
|
|
1,563
|
|
Other
|
|
5
|
|
|
7
|
|
|
—
|
|
|
12
|
|
|
10
|
|
|
14
|
|
|
—
|
|
|
24
|
|
Net sales
|
|
$
|
2,738
|
|
|
$
|
671
|
|
|
$
|
40
|
|
|
$
|
3,449
|
|
|
$
|
5,294
|
|
|
$
|
1,577
|
|
|
$
|
95
|
|
|
$
|
6,966
|
|
|
|
(1)
|
Includes such items as dry goods, dairy, frozen foods, beverages, general merchandise, specialty products, home, health and beauty care and candy.
|
|
|
(2)
|
Includes such items as meat, produce, deli, bakery and floral.
|
We serve customers in the United States and internationally. However, all of our revenue is earned in the U.S. and international distribution occurs through freight-forwarders. We do not have any performance obligations on international shipments subsequent to delivery to the domestic port.
Contract Balances
We do not typically incur costs that are required to be capitalized in connection with obtaining a contract with a customer. Our expenses related to contract origination primarily relate to employee costs that we would incur regardless of whether the contract was obtained with the customer.
We typically do not have any performance obligations to deliver products under our contracts until our customers submit a purchase order, as we stand ready to deliver product upon receipt of a purchase order under our contracts with our customers. We do not typically receive pre-payments from our customers. In addition, as our services contracts typically allow us to invoice our customers for the value of the performance provided, we have applied the practical expedient under ASC 606 to omit disclosure regarding remaining performance obligations.
Customer payments are due when goods or services are transferred to the customer and are typically not conditional on anything other than payment terms, which typically range from due prior to shipment to less than 30 days. Since no significant financing components exist between the period of time we transfer goods or services to the customer and when we receive payment for those goods or services, we have elected not to adjust our revenue recognition policy to recognize financing components. Customer incentives are not considered contract assets as they are not generated through the transfer of goods or services to the customers. No contract assets exist for any period reported within these Condensed Consolidated Financial Statements.
Accounts and notes receivable are as follows:
|
|
|
|
|
|
|
|
|
|
September 8, 2018
|
|
February 24, 2018
|
Customer accounts receivable
|
$
|
550
|
|
|
$
|
519
|
|
Customer notes receivable
|
19
|
|
|
15
|
|
Other receivables
|
81
|
|
|
70
|
|
Allowance for doubtful accounts
|
(12
|
)
|
|
(14
|
)
|
Accounts receivable, net
|
$
|
638
|
|
|
$
|
590
|
|
|
|
|
|
Long-term notes receivable
|
$
|
41
|
|
|
$
|
39
|
|
NOTE 4—BUSINESS AND ASSET ACQUISITIONS
Acquisition of Associated Grocers of Florida, Inc. and Unified Grocers, Inc.
On
December 8, 2017
, we completed the acquisition of Associated Grocers of Florida, Inc. (“AG Florida”) pursuant to the terms of an Agreement and Plan of Merger dated
October 17, 2017
(the “AG Merger Agreement”) by and among Supervalu, a then wholly owned subsidiary of Supervalu (“AG Merger Sub”), and AG Florida. AG Florida was a retailer-owned cooperative. AG Florida distributes full lines of grocery and general merchandise to independent retailers, primarily in South Florida, the Caribbean, Central and South America and Asia. The transaction was valued at
$193
, comprised of
$131
in cash for
100 percent
of the outstanding stock of AG Florida plus the assumption and payoff of AG Florida’s net debt of
$62
at closing. We incurred merger and integration costs of
$4
in fiscal
2019
year-to-date related to the AG Florida acquisition.
On
June 23, 2017
, we completed the acquisition of Unified Grocers, Inc. (“Unified”) pursuant to the terms of an Agreement and Plan of Merger dated
April 10, 2017
(the “Unified Merger Agreement”) by and among Supervalu, West Acquisition Corporation, a then wholly owned subsidiary of Supervalu (“Unified Merger Sub”), and Unified. The transaction was valued at
$390
, comprised of
$114
in cash for
100 percent
of the outstanding stock of Unified plus the assumption and payoff of Unified’s net debt of
$276
at closing. We incurred merger and integration costs of
$4
in fiscal
2019
year-to-date related to the Unified acquisition. The purchase price allocation for Unified was completed in the first quarter of fiscal
2019
.
The table immediately below summarizes the preliminary fair values assigned to AG Florida’s acquired net assets. As of
September 8, 2018
, the fair value allocation of the acquisition was preliminary and will be finalized when the valuation is completed. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation. Our estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as we finalize the valuations of certain tangible and intangible assets acquired and liabilities assumed in connection with the acquisition. The primary areas of the purchase price allocations that are not yet finalized relate to income taxes and deferred taxes.
|
|
|
|
|
|
|
|
|
|
As Originally Reported
|
|
As
Revised
|
Cash and cash equivalents
|
$
|
1
|
|
|
$
|
1
|
|
Accounts receivable
|
49
|
|
|
49
|
|
Inventories
|
48
|
|
|
48
|
|
Other current assets
|
4
|
|
|
4
|
|
Property, plant and equipment
|
84
|
|
|
94
|
|
Goodwill
|
44
|
|
|
39
|
|
Intangible assets
|
52
|
|
|
48
|
|
Deferred tax assets
|
(28
|
)
|
|
(29
|
)
|
Other assets
|
4
|
|
|
4
|
|
Accounts payable
|
(53
|
)
|
|
(53
|
)
|
Other current liabilities
|
(13
|
)
|
|
(13
|
)
|
Long-term debt and capital lease obligations
|
(60
|
)
|
|
(60
|
)
|
Other liabilities assumed
|
(1
|
)
|
|
(1
|
)
|
Total fair value of net assets acquired
|
131
|
|
|
131
|
|
Assumed obligations to make patronage payments to member-owners
|
5
|
|
|
5
|
|
Less cash acquired
|
(1
|
)
|
|
(1
|
)
|
Total consideration for acquisition, less cash acquired
|
$
|
135
|
|
|
$
|
135
|
|
Recognized goodwill is primarily attributable to expected synergies from combining operations, as well as intangible assets that do not qualify for separate recognition.
As of
September 8, 2018
, we recognized the following finite-lived intangible assets of AG Florida:
|
|
|
|
|
|
|
|
Estimated Useful Life (in years)
|
|
Amounts Acquired
|
Customer relationships and supply agreements
|
15 years
|
|
$
|
43
|
|
Favorable operating leases
|
2-5 years
|
|
5
|
|
Total AG Florida finite-lived intangibles acquired
|
|
|
$
|
48
|
|
Combined Results
The following unaudited pro forma condensed consolidated financial results of operations are presented as if the AG Florida and Unified acquisitions were consummated on February 26, 2017, the beginning of the comparable prior annual reporting period:
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
Year-To-Date Ended
|
|
September 9, 2017
(12 weeks)
(1)
|
|
September 9, 2017
(28 weeks)
(1)
|
Net sales
|
$
|
3,663
|
|
|
$
|
8,532
|
|
Net earnings from continuing operations attributable to SUPERVALU INC.
|
$
|
—
|
|
|
$
|
5
|
|
Basic net (loss) earnings from continuing operations per share attributable to SUPERVALU INC.
|
$
|
(0.01
|
)
|
|
$
|
0.13
|
|
Diluted net (loss) earnings from continuing operations per share attributable to SUPERVALU INC.
|
$
|
(0.01
|
)
|
|
$
|
0.13
|
|
|
|
(1)
|
The unaudited pro forma financial information is based on Unified’s and AG Florida’s historical reporting periods. The results of operations attributable to Unified reflect the one week period and the 17 week period prior to the acquisition date of June 23, 2017 for the
second
quarter of fiscal
2018
and for fiscal
2018
year-to-date, respectively. The results of operations attributable to AG Florida reflect the 12 weeks and 28 weeks ended July 29, 2017 for the
second
quarter of fiscal
2018
and for fiscal
2018
year-to-date, respectively. Adjustments have been made to remove historical transaction costs from Unified’s and AG Florida’s historical income statements. No adjustments have been made for direct and indirect merger and integration costs that were incurred subsequent to the respective acquisition dates of Unified and AG Florida.
|
As required by GAAP, these unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined companies would have been had the acquisitions occurred at the beginning of the period being presented, nor are they indicative of future results of operations.
Cub Franchised Stores
In the second quarter of fiscal 2018, we paid
$5
to acquire the minority equity interest of
three
limited liability companies that own and operate three Cub grocery stores. We now own
100 percent
of these companies. The results from these companies will continue to be consolidated in our financial statements.
NOTE 5—RESERVES FOR CLOSED PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT-RELATED IMPAIRMENT CHARGES
Reserves for Closed Properties
Changes in reserves for closed properties consisted of the following:
|
|
|
|
|
|
September 8,
2018
(28 weeks)
|
Reserves for closed properties at beginning of the fiscal year
|
$
|
14
|
|
Additions
|
16
|
|
Payments
|
(4
|
)
|
Reserves for closed properties at the end of period
|
$
|
26
|
|
In fiscal 2019 year-to-date, we recorded closed property reserves for
26
stores that resulted in Selling and administrative charges primarily within Corporate. Reserves were recorded net of estimated subtenant recoveries. These store closure reserves will be paid over the remaining lease terms, which range from one to ten years.
Property, Plant and Equipment-Related Impairment Charges
The following table presents impairment charges related to property, plant and equipment measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
Year-To-Date Ended
|
|
September 8,
2018
(12 weeks)
|
|
September 9,
2017
(12 weeks)
|
|
September 8,
2018
(28 weeks)
|
|
September 9,
2017
(28 weeks)
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
Carrying value
|
$
|
145
|
|
|
$
|
—
|
|
|
$
|
150
|
|
|
$
|
—
|
|
Fair value measured using Level 3 inputs
|
100
|
|
|
—
|
|
|
101
|
|
|
—
|
|
Impairment charge
|
$
|
45
|
|
|
$
|
—
|
|
|
$
|
49
|
|
|
$
|
—
|
|
We monitor our long-lived assets for indicators of impairment on an on-going basis and evaluate their carrying value for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. In the second quarter of fiscal 2019, a Retail asset group experienced a decline in their results of operations and cash flow projections compared to prior period projections. As a result, the asset group was selected for an undiscounted cash flow review and subsequently failed the long-lived asset recoverability test. Accordingly, a fair value assessment using the income approach was performed over that Retail group’s long-lived assets and the carrying value of the assets within this asset group were determined to exceed their estimated fair value. The carrying value of the assets was reduced until such long-lived assets were recorded at the lower of their carrying value or fair value, resulting in an impairment charge of
$44
in the second quarter of fiscal 2019, which was recorded within Selling and administrative expenses in the Retail segment. The remaining carrying value of the long-lived assets in this asset group is
$51
. Significant judgments are required in measuring the fair value of asset groups, including the fair value of business and the fair value of the underlying individual assets, which include cash flow projections of revenues and earnings. Refer to
Note 9—Leases
for information regarding a distribution center impairment charge.
NOTE 6—GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying value of Goodwill by reporting unit that have goodwill consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 24,
2018
|
|
Additions
|
|
Impairments
|
|
Other net
adjustments
|
|
September 8,
2018
|
Wholesale goodwill
|
$
|
780
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
775
|
|
Identifiable intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 8, 2018
|
|
February 24, 2018
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
Customer lists, supply agreements, prescription files and other
|
$
|
173
|
|
|
$
|
(73
|
)
|
|
$
|
100
|
|
|
$
|
177
|
|
|
$
|
(66
|
)
|
|
$
|
111
|
|
Favorable operating leases
|
21
|
|
|
(10
|
)
|
|
11
|
|
|
21
|
|
|
(6
|
)
|
|
15
|
|
Total finite-life intangibles
|
194
|
|
|
(83
|
)
|
|
111
|
|
|
198
|
|
|
(72
|
)
|
|
126
|
|
Indefinite-lived tradename intangibles
|
5
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Total intangibles
|
$
|
199
|
|
|
$
|
(83
|
)
|
|
$
|
116
|
|
|
$
|
203
|
|
|
$
|
(72
|
)
|
|
$
|
131
|
|
Amortization expense of intangible assets with finite useful lives was
$8
and
$6
for
fiscal
2019
and
2018
year-to-date
, respectively.
There were
no
impairment charges for intangible assets for
fiscal
2019
and
2018
year-to-date.
The estimated future amortization expense for the remainder of fiscal 2019 and for the next five fiscal years on intangible assets outstanding as of
September 8, 2018
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
Fiscal 2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
Estimated amortization expense
|
|
$
|
6
|
|
|
$
|
12
|
|
|
$
|
12
|
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
8
|
|
NOTE 7—FAIR VALUE MEASUREMENTS
Recurring fair value measurements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 8, 2018
|
|
Balance Sheet Location
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
Interest rate swap derivative
|
Other current assets
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Mutual funds
|
Other current assets
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Mutual funds
|
Other assets
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Total
|
|
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 24, 2018
|
|
Balance Sheet Location
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
Other assets
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Total
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Interest Rate Swap Derivatives
Interest rate swap derivative reclassifications from Accumulated other comprehensive loss into earnings are recorded within Interest expense, net in the Condensed Consolidated Statements of Operations and were
$0
,
$1
,
$0
and
$2
for the
second
quarters ended
September 8, 2018
and
September 9, 2017
, and fiscal
2019
and
2018
year-to-date, respectively.
As of
September 8, 2018
, a 100 basis point increase in forward LIBOR interest rates would increase the fair value of the interest rate swap by approximately
$1
and a 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swap by approximately
$1
.
Fair Value Estimates
For certain of our financial instruments, including cash and cash equivalents, receivables, accounts payable, accrued salaries and other current assets and liabilities, the fair values approximate carrying amounts due to their short maturities.
The estimated fair value of notes receivable was less than their carrying amount by approximately
$4
and
$1
as of
September 8, 2018
and
February 24, 2018
, respectively. Notes receivable are valued based on a discounted cash flow approach applying
a market rate for similar instruments that is determined using Level 3 inputs.
The estimated fair value of our long-term debt was higher than the carrying amount, excluding debt financing costs, by approximately
$17
and
$23
as of
September 8, 2018
and
February 24, 2018
, respectively. The estimated fair value was based on market quotes, where available, or market values for similar instruments, using Level 2 and Level 3 inputs.
NOTE 8—LONG-TERM DEBT
Our long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Interest Rate at
September 8, 2018
|
|
Maturity Year
|
|
September 8,
2018
|
|
February 24,
2018
|
Secured Term Loan Facility - variable rate
|
5.58%
|
|
2024
|
|
$
|
698
|
|
|
$
|
834
|
|
Senior Notes - fixed rate
|
6.75%
|
|
2021
|
|
180
|
|
|
400
|
|
Senior Notes - fixed rate
|
7.75%
|
|
2022
|
|
350
|
|
|
350
|
|
Revolving ABL Credit Facility - variable rate
|
3.71%
|
|
2021
|
|
183
|
|
|
127
|
|
Other secured loans - variable rate
|
5.11%
|
|
2022-2023
|
|
39
|
|
|
48
|
|
Debt financing costs, net
|
|
|
|
|
(19
|
)
|
|
(24
|
)
|
Original issue discount on debt
|
|
|
|
|
(2
|
)
|
|
(3
|
)
|
Total debt
|
|
|
|
|
1,429
|
|
|
1,732
|
|
Less current maturities of long-term debt
|
|
|
|
|
(6
|
)
|
|
(8
|
)
|
Long-term debt
|
|
|
|
|
$
|
1,423
|
|
|
$
|
1,724
|
|
Our credit facilities and certain long-term debt agreements have restrictive covenants and cross-default provisions, which generally provide, subject to our right to cure, for the acceleration of payments due in the event of a breach of a covenant or a default in the payment of a specified amount of indebtedness due under certain other debt agreements. We were in compliance with all such covenants and provisions for all periods presented.
Senior Secured Credit Agreements
Borrowings under the Secured Term Loan Facility due June 2024 (the “Secured Term Loan Facility”) bear interest at the rate of LIBOR plus
3.50 percent
with a floor on LIBOR set at
1.00 percent
. The Secured Term Loan Facility will mature on June 8, 2024. However, if we have not repaid our
6.75 percent
Senior Notes due June 2021 or our
7.75 percent
Senior Notes due November 2022 by the date that is
91
days prior to the respective maturity date of such notes, the Secured Term Loan Facility will mature on the date that is
91
days prior to the maturity date of such notes. During the first quarter of fiscal 2018, in connection with the completion of the fourth term loan amendment agreement amending and restating our secured term loan facility due March 2019, we paid debt financing costs of approximately
$8
, of which
$5
was capitalized and
$3
was expensed, and paid original issue discount of approximately
$2
, all of which was capitalized, and recognized a non-cash charge of approximately
$2
for the write-off of existing unamortized debt financing costs.
The Secured Term Loan Facility is secured by substantially all of our real estate, equipment and certain other assets. The Secured Term Loan Facility is guaranteed by our material subsidiaries (together with Supervalu, the “Term Loan Parties”). To secure their obligations under the Secured Term Loan Facility, the Term Loan Parties have granted a perfected first-priority security interest in substantially all of their intellectual property and a first-priority mortgage lien and security interest in certain owned or ground-leased real estate and associated equipment pledged as collateral. As of
September 8, 2018
and
February 24, 2018
, there was
$509
and
$710
, respectively, of owned or ground-leased real estate and associated equipment pledged as collateral, which was included in Property, plant and equipment, net in the Condensed Consolidated Balance Sheets. In
addition, the obligations of the Term Loan Parties under the Secured Term Loan Facility are secured by second-priority security interests in the collateral securing our
$1,000
asset-based revolving credit facility (the “Revolving ABL Credit Facility”). As of
September 8, 2018
and
February 24, 2018
,
$6
and
$8
of the Secured Term Loan Facility was classified as current, respectively, excluding debt financing costs and original issue discount.
The loans under the Secured Term Loan Facility may be voluntarily prepaid in certain minimum principal amounts, subject to the payment of breakage or similar costs. Pursuant to the Secured Term Loan Facility, we must, subject to certain exceptions and certain customary reinvestment rights, apply
100 percent
of Net Cash Proceeds (as defined in the facility) from certain types of asset sales (excluding proceeds of the collateral security of the Revolving ABL Credit Facility and other secured indebtedness) to prepay the loans outstanding under the Secured Term Loan Facility. We must also prepay loans outstanding under the facility no later than
90
days after the fiscal year end in an aggregate principal amount equal to a percentage (which percentage ranges from
0
to
50
percent depending on our Total Secured Leverage Ratio (as defined in the facility) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the facility) for the fiscal year then ended, minus any voluntary prepayments made during such fiscal year with Internally Generated Cash (as defined in the facility). Based on our Excess Cash Flow in fiscal 2018, no prepayment was required in the first quarter of fiscal 2019. The potential amount of prepayment from Excess Cash Flow in fiscal 2019 that may be required in fiscal 2020 is not reasonably estimable as of
September 8, 2018
.
On May 2, 2018, we made a mandatory prepayment on the Secured Term Loan Facility of
$34
in connection with the sale of certain of our Farm Fresh stores. Additionally, on May 9, 2018, we made a mandatory prepayment on the Secured Term Loan Facility of
$100
in connection with the sale leaseback of certain of our owned distribution centers. Non-cash charges of
$2
for the write-off of existing unamortized financing costs and original issuance discount were incurred as a result of these mandatory prepayments.
The assets included in the Condensed Consolidated Balance Sheets securing the outstanding borrowings under the Revolving ABL Credit Facility on a first-priority basis, and the unused available credit and fees under the Revolving ABL Credit Facility, were as follows:
|
|
|
|
|
|
|
|
|
Assets securing the Revolving ABL Credit Facility
(1)
:
|
September 8, 2018
|
|
February 24, 2018
|
Certain inventory assets included in Inventories, net and Current assets of discontinued operations
|
$
|
1,286
|
|
|
$
|
1,176
|
|
Certain receivables included in Receivables, net and Current assets of discontinued operations
|
440
|
|
|
410
|
|
Certain amounts included in Cash and cash equivalents and Current assets of discontinued operations
|
16
|
|
|
20
|
|
|
|
(1)
|
The Revolving ABL Credit Facility is also secured by all of our pharmacy scripts including those within Intangible assets, net.
|
|
|
|
|
|
|
|
|
|
Unused available credit and fees under the Revolving ABL Credit Facility:
|
September 8, 2018
|
|
February 24, 2018
|
Outstanding letters of credit
|
$
|
57
|
|
|
$
|
57
|
|
Letters of credit fees
|
1.375
|
%
|
|
1.375
|
%
|
Unused available credit
|
761
|
|
|
816
|
|
Unused facility fees
|
0.25
|
%
|
|
0.25
|
%
|
The revolving loans under the Revolving ABL Credit Facility may be voluntarily prepaid in certain minimum principal amounts, in whole or in part, without premium or penalty, subject to breakage or similar costs. SUPERVALU and those subsidiaries named as borrowers under the Revolving ABL Credit Facility are required to repay the revolving loans in cash and provide cash collateral under this facility to the extent that the revolving loans and letters of credit exceed the lesser of the borrowing base then in effect or the aggregate amount of the lenders’ commitments under the Revolving ABL Credit Facility. Certain of our material subsidiaries are co-borrowers under the Revolving ABL Credit Facility, and this facility is guaranteed by the rest of our material subsidiaries (SUPERVALU and those subsidiaries named as borrowers and guarantors under the Revolving ABL Credit Facility, the “ABL Loan Parties”). To secure their obligations under this facility, the ABL Loan Parties have granted a perfected first-priority security interest for the benefit of the facility lenders in their present and future inventory, credit card, wholesale trade, pharmacy and certain other receivables, prescription files and related assets. In addition, the obligations under the Revolving ABL Credit Facility are secured by second-priority liens on and security interests in the collateral securing the Secured Term Loan Facility, subject to certain limitations to ensure compliance with our outstanding debt instruments and leases.
Both the Secured Term Loan Facility and the Revolving ABL Credit Facility limit our ability to make Restricted Payments (as defined in both the Secured Term Loan Facility and the Revolving ABL Credit Facility), which include dividends to
stockholders and share repurchases. The Secured Term Loan Facility allows up to
$125
of Restricted Payments regardless of the resulting pro forma Total Leverage Ratio (as defined in the facility). The Secured Term Loan Facility caps the aggregate amount of additional Restricted Payments that may be made over the life of the Secured Term Loan Facility, with the additional Restricted Payments being subject to a pro forma Total Secured Leverage Ratio requirement (as defined in the facility) of
3.5
to 1. That aggregate cap can fluctuate over time and the cap could be reduced by certain other actions we may take, including prepayments of debt other than the senior notes and Permitted Investments (as defined in the Secured Term Loan Facility). As of
September 8, 2018
, this aggregate cap was approximately
$502
. The Senior Term Loan Facility permits unlimited Restricted Payments if the Total Leverage Ratio (as defined in the Senior Term Loan Facility) after giving effect thereto would be less than
2.0
to 1. The Revolving ABL Credit Facility permits dividends up to
$75
per fiscal year, not to exceed
$175
in the aggregate over the life of the Revolving ABL Credit Facility as long as no Cash Dominion Event (as defined in the Revolving ABL Credit Facility) exists. Those caps could be reduced by senior note and other prepayments made by us. The Revolving ABL Credit Facility permits unlimited Restricted Payments as long as the Payment Conditions (as defined in the Revolving ABL Credit Facility) are met.
Debentures
On June 11, 2018, we partially redeemed the
6.75 percent
Senior Notes due June 2021 (the “2021 Notes”) in an aggregate principal amount of
$220
. We paid the applicable redemption premium of approximately
$4
, which was expensed, and incurred non-cash charges of
$1
for the write off of existing unamortized financing charges on the redeemed 2021 Notes.
The
$180
of the 2021 Notes and the
$350
of
7.75 percent
Senior Notes due November 2022 contain operating covenants, including limitations on liens and on sale and leaseback transactions. We were in compliance with all such covenants and provisions for all periods presented.
NOTE 9—LEASES
In the second quarter of fiscal 2019, we amended an agreement to sell one distribution center including to provide for a shorter-term lease that we expect to classify as an operating lease and we recorded a
$2
asset impairment charge within Wholesale attributable to the revised proceeds being in excess of the carrying value of the distribution center.
On May 9, 2018, we received
$382
in aggregate proceeds, excluding taxes and closing costs, for the sale and leaseback of seven of our distribution centers as part of our previously announced agreement to sell
eight
of our owned distribution centers. Subject to customary closing conditions, the sale of the eighth distribution center is expected to close in the third quarter of fiscal 2019 and generate
$101
of proceeds. For the distribution centers sold, we have entered into lease agreements with initial terms of 20 years with five, five-year renewal options that qualified for sale-leaseback accounting and have been classified as operating leases. In the first quarter of fiscal 2019, we deferred a
$91
gain on the sale of the seven distribution centers, which is classified in Other long-term liabilities and Other current liabilities.
We lease most of our Retail stores and certain distribution centers, office facilities and equipment from third parties. Many of these leases include renewal options and, in certain instances, also include options to purchase. Rent expense, other operating lease expense and subtenant rentals all under operating leases consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
Year-To-Date Ended
|
|
September 8,
2018
(12 weeks)
|
|
September 9,
2017
(12 weeks)
|
|
September 8,
2018
(28 weeks)
|
|
September 9,
2017
(28 weeks)
|
Minimum rent
|
$
|
29
|
|
|
$
|
26
|
|
|
$
|
67
|
|
|
$
|
53
|
|
Contingent rent
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Rent expense
(1)
|
30
|
|
|
26
|
|
|
68
|
|
|
54
|
|
Less subtenant rentals
|
(8
|
)
|
|
(7
|
)
|
|
(18
|
)
|
|
(15
|
)
|
Total net rent expense
|
$
|
22
|
|
|
$
|
19
|
|
|
$
|
50
|
|
|
$
|
39
|
|
|
|
(1)
|
Rent expense as presented here includes
$1
and
$3
in the
second
quarters of fiscal
2019
and
2018
, respectively, and
$4
and
$7
for fiscal
2019
and
2018
year-to-date, respectively, of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the historical expense to be included within continuing operations, as we expect to remain primarily obligated under these leases.
|
Future minimum lease payments to be made by us or certain third parties in the case of assigned leases for noncancellable operating leases and capital leases as of
September 8, 2018
consisted of the amounts presented in the following table. These amounts have not been reduced for future minimum subtenant rentals under certain operating subleases, including assignments.
|
|
|
|
|
|
|
|
|
|
Lease Obligations
|
Fiscal Year
|
Operating Leases
|
|
Capital Leases
|
Remaining Fiscal 2019
|
$
|
44
|
|
|
$
|
17
|
|
2020
|
112
|
|
|
37
|
|
2021
|
108
|
|
|
33
|
|
2022
|
94
|
|
|
30
|
|
2023
|
82
|
|
|
23
|
|
Thereafter
|
838
|
|
|
84
|
|
Total future minimum obligations
|
$
|
1,278
|
|
|
224
|
|
Less interest
|
|
|
(66
|
)
|
Present value of net future minimum obligations
|
|
|
158
|
|
Less current capital lease obligations
|
|
|
(24
|
)
|
Long-term capital lease obligations
|
|
|
$
|
134
|
|
We lease certain property to third parties under operating, capital and direct financing leases, including assigned leases for which we have future minimum lease payment obligations that are included in the table above. Future minimum lease and subtenant rentals to be received under noncancellable operating and deferred financing income leases, under which we are the lessor, as of
September 8, 2018
, consisted of the following:
|
|
|
|
|
|
|
|
|
|
Lease Receipts
|
Fiscal Year
|
Operating Leases
|
|
Direct Financing Leases
|
Remaining Fiscal 2019
|
$
|
10
|
|
|
$
|
—
|
|
2020
|
24
|
|
|
1
|
|
2021
|
20
|
|
|
—
|
|
2022
|
18
|
|
|
—
|
|
2023
|
11
|
|
|
—
|
|
Thereafter
|
32
|
|
|
—
|
|
Total minimum lease receipts
|
$
|
115
|
|
|
$
|
1
|
|
NOTE 10—BENEFIT PLANS
Net periodic benefit income and contributions for defined benefit pension and other postretirement benefit plans consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
Pension Benefits
|
|
Other Postretirement Benefits
|
September 8,
2018
(12 weeks)
|
|
September 9,
2017
(12 weeks)
|
|
September 8,
2018
(12 weeks)
|
|
September 9,
2017
(12 weeks)
|
Interest cost
|
$
|
22
|
|
|
$
|
20
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Expected return on assets
|
(31
|
)
|
|
(33
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service benefit
|
(1
|
)
|
|
3
|
|
|
(3
|
)
|
|
(3
|
)
|
Amortization of net actuarial loss
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic income expense
|
$
|
(7
|
)
|
|
$
|
(10
|
)
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
Contributions to benefit plans
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Year-To-Date Ended
|
Pension Benefits
|
|
Other Postretirement Benefits
|
September 8,
2018
(28 weeks)
|
|
September 9,
2017
(28 weeks)
|
|
September 8,
2018
(28 weeks)
|
|
September 9,
2017
(28 weeks)
|
Interest cost
|
$
|
50
|
|
|
$
|
44
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Expected return on assets
|
(71
|
)
|
|
(73
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service benefit
|
(1
|
)
|
|
6
|
|
|
(7
|
)
|
|
(8
|
)
|
Amortization of net actuarial loss
|
7
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Net periodic benefit income
|
$
|
(15
|
)
|
|
$
|
(23
|
)
|
|
$
|
(6
|
)
|
|
$
|
(6
|
)
|
Contributions to benefit plans
|
$
|
(6
|
)
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Multiemployer Pension Plans
During fiscal
2019
and
2018
year-to-date, we contributed
$25
and
$20
, respectively, to various multiemployer pension plans, primarily defined benefit pension plans, under collective bargaining agreements.
Pension Contributions
No minimum contributions are required to our pension plans in fiscal
2019
in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). We anticipate our fiscal
2019
discretionary pension contributions and required minimum other postretirement benefit plan contributions will be approximately
$5
to
$10
.
NOTE 11—NET (LOSS) EARNINGS PER SHARE
The following table reflects the calculation of basic and diluted net (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
Year-To-Date Ended
|
|
September 8,
2018
(12 weeks)
|
|
September 9,
2017
(12 weeks)
|
|
September 8,
2018
(28 weeks)
|
|
September 9,
2017
(28 weeks)
|
Net (loss) earnings from continuing operations
|
$
|
(55
|
)
|
|
$
|
(1
|
)
|
|
$
|
(82
|
)
|
|
$
|
8
|
|
Less net loss (earnings) attributable to noncontrolling interests
|
1
|
|
|
—
|
|
|
1
|
|
|
(1
|
)
|
Net (loss) earnings from continuing operations attributable to SUPERVALU INC.
|
(54
|
)
|
|
(1
|
)
|
|
(81
|
)
|
|
7
|
|
(Loss) income from discontinued operations, net of tax
|
(3
|
)
|
|
(24
|
)
|
|
3
|
|
|
(21
|
)
|
Net loss attributable to SUPERVALU INC.
|
$
|
(57
|
)
|
|
$
|
(25
|
)
|
|
$
|
(78
|
)
|
|
$
|
(14
|
)
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding—basic
|
39
|
|
|
38
|
|
|
39
|
|
|
38
|
|
Dilutive impact of stock-based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average number of shares outstanding—diluted
|
39
|
|
|
38
|
|
|
39
|
|
|
38
|
|
|
|
|
|
|
|
|
|
Basic net (loss) earnings per share attributable to SUPERVALU INC.:
|
Continuing operations
|
$
|
(1.41
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(2.11
|
)
|
|
$
|
0.20
|
|
Discontinued operations
|
$
|
(0.08
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.55
|
)
|
Basic net loss per share
|
$
|
(1.49
|
)
|
|
$
|
(0.65
|
)
|
|
$
|
(2.04
|
)
|
|
$
|
(0.36
|
)
|
Diluted net (loss) earnings per share attributable to SUPERVALU INC.:
|
Continuing operations
|
$
|
(1.41
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(2.11
|
)
|
|
$
|
0.20
|
|
Discontinued operations
|
$
|
(0.08
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.55
|
)
|
Diluted net loss per share
|
$
|
(1.49
|
)
|
|
$
|
(0.65
|
)
|
|
$
|
(2.04
|
)
|
|
$
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
2
|
|
NOTE 12—COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED COMPREHENSIVE LOSS
Comprehensive (loss) income is reported in the Condensed Consolidated Statements of Comprehensive Income. Comprehensive income includes all changes in stockholders’ equity during the reporting period, other than those resulting from investments by and distributions to stockholders. Our comprehensive income is calculated as net (loss) earnings including noncontrolling interests, plus or minus adjustments for pension and other postretirement benefit obligations, net of tax, and changes in the fair value of cash flow hedges, net of tax, less comprehensive income attributable to noncontrolling interests.
Accumulated other comprehensive loss represents the cumulative balance of other comprehensive (loss) income, net of tax, as of the end of the reporting period and relates to pension and other postretirement benefit obligation adjustments, net of tax, and unrealized losses on cash flow hedges, net of tax.
Changes in Accumulated other comprehensive loss by component for fiscal
2019
year-to-date are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Plans
|
|
Interest Rate Swap
|
|
Total
|
Accumulated other comprehensive loss at beginning of the fiscal year, net of tax
|
$
|
(210
|
)
|
|
$
|
—
|
|
|
$
|
(210
|
)
|
Amortization of amounts included in net periodic benefit income
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of cash flow hedge
|
—
|
|
|
—
|
|
|
—
|
|
Net current-period Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
Adoption of ASU 2018-02
|
(61
|
)
|
|
—
|
|
|
(61
|
)
|
Accumulated other comprehensive loss at the end of period, net of tax
|
$
|
(271
|
)
|
|
$
|
—
|
|
|
$
|
(271
|
)
|
Changes in Accumulated other comprehensive loss by component for fiscal
2018
year-to-date are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Plans
|
|
Interest Rate Swap
|
|
Total
|
Accumulated other comprehensive loss at beginning of the fiscal year, net of tax
|
$
|
(276
|
)
|
|
$
|
(2
|
)
|
|
$
|
(278
|
)
|
Amortization of amounts included in net periodic benefit income
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Amortization of cash flow hedge
|
—
|
|
|
1
|
|
|
1
|
|
Net current-period Other comprehensive income
|
(1
|
)
|
|
1
|
|
|
—
|
|
Accumulated other comprehensive loss at the end of period, net of tax
|
$
|
(277
|
)
|
|
$
|
(1
|
)
|
|
$
|
(278
|
)
|
Items reclassified out of Accumulated other comprehensive loss had the following impact on the Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
Year-To-Date Ended
|
|
|
|
September 8,
2018
(12 weeks)
|
|
September 9,
2017
(12 weeks)
|
|
September 8,
2018
(28 weeks)
|
|
September 9,
2017
(28 weeks)
|
|
Affected Line Item on Condensed Consolidated Statements of Operations
|
Pension and postretirement benefit plan obligations:
|
|
|
|
|
|
|
|
|
|
Amortization of amounts included in net periodic benefit income
(1)
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
Net periodic benefit income, excluding service cost
|
Total reclassifications
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Income tax (benefit) provision
|
Total reclassifications, net of tax
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap cash flow hedge:
|
|
|
|
|
|
|
|
|
|
Reclassification of cash flow hedge
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
Interest expense, net
|
Income tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
Income tax (benefit) provision
|
Total reclassifications, net of tax
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
|
|
|
(1)
|
Amortization of amounts included in net periodic benefit income includes amortization of prior service benefit and amortization of net actuarial loss as reflected in
Note 10—Benefit Plans
.
|
As of
September 8, 2018
, we expect to reclassify
$1
out of Accumulated other comprehensive loss into Interest expense, net during the following twelve-month period.
NOTE 13—STOCK-BASED AWARDS
We recognized pre-tax stock-based compensation expense (included primarily in Selling and administrative expenses in the Condensed Consolidated Statements of Operations) related to stock options, restricted stock units (“RSUs”), restricted stock awards and performance share units (“PSUs”) (collectively referred to as “stock-based awards”) of
$6
,
$4
,
$12
and
$10
for the
second
quarters of fiscal
2019
and
2018
, and for fiscal
2019
and
2018
year-to-date, respectively.
In the first quarter of fiscal 2019, we granted cash settled restricted stock units (“Cash settled RSUs”), RSUs and PSUs under the 2012 Stock Plan to eligible employees, as part of our annual grant. In the second quarter of fiscal 2019, we modified the outstanding Cash settled RSUs to delete the provision stating that the settlement amount shall not be more than 1.25 times the fair market value of the common stock on the grant date of the awards. The amount of awards granted in the first quarter of fiscal 2019 and the grant date fair values are as follows:
|
|
|
|
|
|
|
|
|
(in thousands, except per unit amounts)
|
|
Awards
Issued
|
|
Grant Date Fair Value
|
Cash settled RSUs
(1)
|
|
637
|
|
|
$
|
16.53
|
|
RSUs
(1)
|
|
723
|
|
|
$
|
16.53
|
|
PSUs
(2)
|
|
453
|
|
|
$
|
14.93
|
|
|
|
(1)
|
Cash settled RSUs and RSUs vest over a three-year period from the date of grant.
|
|
|
(2)
|
PSUs have fiscal 2019-2021 and fiscal 2019-2022 performance periods and settle in shares of our common stock.
|
The grant date fair value used to determine compensation expense associated with the PSUs was calculated utilizing a Monte Carlo simulation. The weighted average assumptions used to determine the fair value of the PSUs as of the grant date are as follows:
|
|
|
|
|
Fiscal 2019 Annual Grant
|
Dividend yield
|
—
|
%
|
Volatility rate
|
47.0
|
%
|
Risk-free interest rate
|
2.7
|
%
|
Expected life
|
3.8 years
|
|
NOTE 14—INCOME TAXES
Fiscal
2019
and
2018
year-to-date tax provision included
$0
and
$5
of discrete tax expense, respectively. The decrease is primarily due to the decrease in discrete tax expense related to stock-based compensation and the net tax benefit for the release of a valuation allowance in fiscal
2019
.
We have not completed our accounting for the income tax effects of certain elements of the Tax Act, but we recorded provisional adjustments based on reasonable estimates, which have not materially changed since February 24, 2018. Those estimates may be impacted by the need for further analysis and future clarification and guidance regarding available tax accounting methods and elections, state tax conformity to federal tax changes and expected changes to U.S. Treasury regulations. We anticipate these estimates will be finalized on or before the due date of our federal and state income tax returns.
NOTE 15—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Guarantees and Contingent Liabilities
We have outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of
September 8, 2018
. These guarantees were generally made to support the business growth of Wholesale customers. The guarantees are generally for the entire terms of the leases, fixture financing loans or other debt obligations with remaining terms that range from less than
one
year to
twelve
years, with a weighted average remaining term of approximately
seven
years. For each guarantee issued, if the Wholesale customer or other third party defaults on a payment, we would be required to make payments under our guarantee. Generally, the guarantees are secured by indemnification agreements or personal guarantees of the Wholesale customer.
We review performance risk related to our guarantee obligations based on internal measures of credit performance. As of
September 8, 2018
, the maximum amount of undiscounted payments we would be required to make in the event of default of all guarantees was
$50
(
$40
on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, we believe the likelihood that we will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations under our guarantee arrangements as the fair value has been determined to be de minimis.
We 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 the obligations under the leases if any of the assignees are unable to fulfill their lease obligations. Due to the wide distribution of our lease assignments among third parties, and various other remedies available, we believe the likelihood that we will be required to assume a material amount of these obligations is remote. No amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations under our guarantee arrangements as the fair value has been determined to be de minimis.
We are a party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. These agreements primarily relate to our commercial contracts, service agreements, contracts entered into for the purchase and sale of
stock or assets, operating leases and other real estate contracts, financial agreements, agreements to provide services to us and agreements to indemnify officers, directors and employees in the performance of their work. While our aggregate indemnification obligations could result in a material liability, we are not aware of any matters that are expected to result in a material liability. No amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations as the fair value has been determined to be de minimis.
Following the sale of NAI on March 21, 2013, we remain contingently liable with respect to certain self-insurance commitments and other guarantees as a result of parental guarantees we issued with respect to the obligations of NAI that were incurred while NAI was our subsidiary. As of
September 8, 2018
, using actuarial estimates as of December 31, 2017, the total undiscounted amount of all such guarantees was estimated at
$58
(
$52
on a discounted basis). Based on the expected settlement of the self-insurance claims that underlie our commitments, we believe that such contingent liabilities will continue to decline. Subsequent to the sale of NAI, NAI collateralized most of these obligations with letters of credit and surety bonds to numerous states. Because NAI remains a primary obligor on these self-insurance and other obligations and has collateralized most of the self-insurance obligations for which we remain contingently liable, we believe that the likelihood that we will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these guarantees, as the fair value has been determined to be de minimis.
Agreements with United Natural Foods, Inc.
On July 25, 2018, SUPERVALU, SUPERVALU Enterprises, Inc., a wholly owned subsidiary of SUPERVALU (“Enterprises”), United Natural Foods, Inc. (“UNFI”) and Jedi Merger Sub, Inc., a newly formed wholly owned subsidiary of UNFI (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”), providing for the acquisition of the Company by UNFI.
The transaction will be effected through a merger of Merger Sub and (1) SUPERVALU, if the Merger (as defined below) is completed prior to the completion of the Company’s internal reorganization into a holding company structure, referred to as our Holding Company reorganization, or (2) Enterprises, if the Merger (as defined below) is completed following the completion of our Holding Company reorganization. On the terms and subject to the conditions set forth in the Merger Agreement, at the closing of the transactions contemplated thereby (the “Closing”), Merger Sub will merge with and into SUPERVALU or Enterprises, as applicable, (the “Merger”), with SUPERVALU or Enterprises, as applicable, surviving the Merger as a wholly owned subsidiary of UNFI, and each outstanding share of such company’s common stock will be converted into the right to receive
$32.50
per share in cash. The Merger Agreement contains certain termination rights, in which we may be required to pay UNFI a termination fee of
$40.5
in certain circumstances.
For further information on the proposed Merger and Merger Agreement, please refer to the Merger Agreement, a copy of which has been filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (“SEC”) on July 26, 2018, together with the First Amendment filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on October 10, 2018.
The transaction is currently expected to be completed in the fourth quarter of calendar year 2018, subject to shareholder approval and other customary closing conditions.
Agreements with Save-A-Lot and Onex
The Agreement and Plan of Merger pursuant to which we sold the Save-A-Lot business (the “SAL Merger Agreement”) contains customary indemnification obligations of each party with respect to breaches of their respective representations, warranties and covenants, and certain other specified matters, on the terms and subject to the limitations set forth in the SAL Merger Agreement. Similarly, we entered into a Separation Agreement with Moran Foods (the “Separation Agreement”), which contains indemnification obligations and covenants related to the separation of the assets and liabilities of the Save-A-Lot business from us. We also entered into the Services Agreement, pursuant to which we are providing Save-A-Lot various technical, human resources, finance and other operational services for a term of
five
years, subject to termination provisions that can be exercised by each party. The initial annual base charge under the Services Agreement is
$30
, subject to adjustments. The Services Agreement generally requires each party to indemnify the other party against third-party claims arising out of the performance of or the provision or receipt of services under the Services Agreement. While our aggregate indemnification obligations to Save-A-Lot and Onex could result in a material liability, we are not aware of any matters that are expected to result in a material liability. We have recorded the fair value of the guarantee in the Condensed Consolidated Balance Sheets.
Agreements with AB Acquisition LLC and Affiliates
In connection with the sale of NAI, we entered into various agreements with AB Acquisition LLC and its affiliates related to on-going operations, including a TSA with each of NAI and Albertson’s LLC. We are now providing services to NAI and Albertson’s LLC to transition and wind down the TSA. In exchange for these transition and wind down services, we are entitled to receive aggregate fees of
$50
that are being paid in eight
$6
increments from April 2015 through October 2018. These payments are separate from and incremental to the fixed and variable fees we receive under the TSA. On October 17, 2017, we entered into a letter agreement with each of Albertson’s LLC and NAI pursuant to which the parties agreed that the TSA would expire on September 21, 2018 as to those services that we are providing to Albertson’s LLC and NAI, other than with respect to certain limited services and to Albertson’s LLC for one distribution center until at least October 2018. The parties do not expect any of these services, or any of the transition and wind down services, to extend beyond April 2019. We also agreed that Albertson’s LLC and NAI would no longer provide services to us after September 21, 2019. In addition, we have been operating a distribution center in Lancaster, Pennsylvania that is owned by NAI. In March 2017, we acquired a distribution center in Harrisburg, Pennsylvania and leased a facility in Carlisle, Pennsylvania. Other than with respect to certain freezer capacity that we will continue to ship from the Lancaster distribution center, we expect to have transitioned from the Lancaster distribution center to the Harrisburg and Carlisle distribution centers by the end of October 2018.
Haggen
In connection with Haggen’s bankruptcy process, Haggen has now closed or sold all
164
of its stores. The transition and wind down of the Haggen transition services agreement occurred in the second quarter of fiscal 2017, and we now provide limited services in connection with the wind down of the Haggen estate. We filed approximately
$2
of administrative 503(b)(9) priority claims and approximately
$8
of unsecured claims with the bankruptcy court, including a number of contingent claims. On September 30, 2016, the bankruptcy court approved settlement agreements resolving our unsecured claims against Haggen. In accordance with the terms of the settlement agreements, we received approximately
$3
from Haggen on October 11, 2016, and agreed to an allowed administrative 503(b)(9) priority claim in the amount of approximately
$2
.
Pursuant to a trade agreement that Unified entered into with Haggen, Haggen paid a substantial portion of Unified’s prepetition receivables in exchange for certain shipping terms from Unified, and Haggen also agreed to stipulate to an allowed administrative 503(b)(9) priority claim for the balance of Unified’s prepetition claim for goods shipped to Haggen. Accordingly, Unified filed a proof of claim asserting an administrative expense priority claim in the amount of
$6
. Haggen has asserted certain potential offsets to Unified’s priority claim that Unified disputes. Unified also filed a proof of claim against Haggen for breach of contract damages related to the termination of its supply agreement and various ancillary agreements. If allowed, such claim would be treated as a general unsecured claim in the Haggen bankruptcy cases. Relatedly, on September 7, 2016, the Official Committee of Unsecured Creditors (the “Committee”) filed a complaint against Comvest Group Holdings, LLC, the private equity owner of Haggen (“Comvest”), certain of Haggen’s non-debtor affiliates, and certain of their respective officers, directors and managers (collectively the “Defendants”) in the bankruptcy court to recover additional funds for Haggen’s bankruptcy estate for the benefit of creditors, including potential payment of Unified claims. The trial concluded in November 2017 and on January 22, 2018, the bankruptcy court ruled in favor of the Defendants on all counts dismissing the Committee’s complaint. On February 2, 2018, the Committee filed a Notice of Appeal and subsequently filed a Statement of Issues on Appeal challenging the bankruptcy court’s ruling with respect to the Committee’s recharacterization claim. Absent a successful appeal, it is our understanding that the Haggen estate will not have sufficient assets to pay administrative expense priority claims in full, including our and Unified’s 503(b)(9) priority claims, or to pay any amounts for general unsecured claims. On August 23, 2018, the Committee and certain individual creditors, including Unified and Supervalu, entered into a global settlement agreement with the Defendants and Haggen to resolve the Committee litigation and other claims related to any prepetition agreements or arrangements between the parties, whereby Unified’s and Supervalu’s administrative priority claims will be allowed and paid in the approximate amount of
$7
. In connection with the global settlement, Haggen intends to resolve and conclude the bankruptcy cases through (i) a plan of liquidation for the holding company and (ii) the structured dismissal of the operating companies’ bankruptcy cases. Pursuant to the global settlement agreement and the proposed structured dismissal, creditors will not receive a distribution on account of their general unsecured claims. The global settlement agreement, plan of liquidation, and structured dismissal are subject to bankruptcy court approval. The hearing before the bankruptcy court to approve the global settlement is scheduled for November 14, 2018.
Information Technology Intrusions
In prior periods, we have separately reported on reasonably possible losses with respect to the criminal network intrusions we experienced in fiscal 2015 (the “Criminal Intrusion”). As of the date of this filing, the only active claim relating to the Criminal Intrusion is the litigation entitled
In Re: SUPERVALU Inc. Customer Data Security Breach Litigation
disclosed in more detail below in this Note 15 under
Legal Proceedings
.
Other Contractual Commitments
In the ordinary course of business, we enter into supply contracts to purchase products for resale and purchase, and service contracts for fixed asset and information technology commitments. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of
September 8, 2018
, we had approximately
$371
of non-cancelable future purchase obligations.
Legal Proceedings
We are subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In the opinion of management, based upon currently available facts, the likelihood that the ultimate outcome of any lawsuits, claims and other proceedings will have a material adverse effect on our overall results of our operations, cash flows or financial position is remote.
In December 2008, a class action complaint was filed in the United States District Court for the Western District of Wisconsin against us alleging that a 2003 transaction between Supervalu and C&S Wholesale Grocers, Inc. (“C&S”) was a conspiracy to restrain trade and allocate markets. In the 2003 transaction, we purchased certain assets of the Fleming Corporation as part of Fleming Corporation’s bankruptcy proceedings and sold certain of our assets to C&S that were located in New England.
Three
other retailers filed similar complaints in other jurisdictions and the cases were consolidated and are proceeding in the United States District Court in Minnesota. The complaints alleged that the conspiracy was concealed and continued through the use of non-compete and non-solicitation agreements and the closing down of the distribution facilities that we and C&S purchased from each other. Plaintiffs are divided into Midwest plaintiffs and a New England plaintiff and are seeking monetary damages, injunctive relief and attorney’s fees. On June 19, 2015, the District Court Magistrate Judge entered an order that decided a number of matters including granting Midwest plaintiffs’ request to seek class certification for certain Midwest distribution centers and denying New England plaintiff’s request to add an additional New England plaintiff and denying plaintiff’s request to seek class certification for a group of New England retailers. In September 2015, the New England plaintiff appealed to the 8th Circuit the denial of the request to add an additional New England plaintiff and to seek class certification for a group of New England retailers and the hearing before the 8th Circuit occurred on May 17, 2016. On September 7, 2016, the District Court granted Midwest plaintiffs’ motion to certify
five
Midwest distribution center classes, only
one
of which sued us (the non-arbitration Champaign distribution center class). On March 1, 2017, the 8th Circuit denied the New England plaintiff’s appeals seeking to join an additional New England plaintiff and the appeal seeking the ability to move for class certification of a smaller New England class. At a mediation on May 25, 2017, we reached a settlement with the non-arbitration Champaign distribution center class, which is the one Midwest class suing us. We and the Midwest plaintiffs entered into a settlement agreement and the court granted final approval of the settlement on November 17, 2017. The material terms of the settlement include: (1) denial of wrongdoing and liability by us; (2) release of all Midwest plaintiffs’ claims against us related to the allegations and transactions at issue in the litigation that were raised or could have been raised by the non-arbitration Champaign distribution center class; and (3) payment by us of
$9
. There is no contribution between us and C&S, and C&S did not settle the claims alleged against it and on April 19, 2018, a jury returned a verdict in favor of C&S determining that there was no conspiracy between Supervalu and C&S to restrain trade. The New England plaintiff is not a party to the settlement and is pursuing its individual claims and potential class action claims against us, which at this time are determined as remote. On February 15, 2018, we filed a summary judgment and Daubert motion and the New England plaintiff filed a motion for class certification and on July 27, 2018, the District Court granted our motions. The New England plaintiff appealed to the 8th Circuit on August 15, 2018.
In August and November 2014,
four
class action complaints were filed against us relating to the Criminal Intrusion. The cases were centralized in the Federal District Court for the District of Minnesota under the caption
In Re: SUPERVALU Inc. Customer Data Security Breach Litigation
. On June 26, 2015, the plaintiffs filed a Consolidated Class Action Complaint. We filed a Motion to Dismiss the Consolidated Class Action Complaint and the hearing took place on November 3, 2015. On January 7, 2016, the District Court granted the Motion to Dismiss and dismissed the case without prejudice, holding that the plaintiffs did not have standing to sue as they had not met their burden of showing any compensable damages. On February 4, 2016, the plaintiffs filed a motion to vacate the District Court’s dismissal of the complaint or in the alternative to conduct discovery and file an amended complaint, and we filed our response in opposition on March 4, 2016. On April 20, 2016, the District Court denied plaintiffs’ motion to vacate the District Court’s dismissal or in the alternative to amend the complaint. On May 18, 2016, plaintiffs appealed to the 8th Circuit and on May 31, 2016, we filed a cross-appeal to preserve our additional arguments for dismissal of the plaintiffs’ complaint. On August 30, 2017, the 8th Circuit affirmed the dismissal for 14 out of the 15 plaintiffs finding they had no standing. The 8th Circuit did not consider our cross-appeal and remanded the case back for consideration of our additional arguments for dismissal against the one remaining plaintiff. On October 30, 2017, we filed our motion to dismiss the remaining plaintiff and on November 7, 2017, the plaintiff filed a motion to amend its complaint. The court held a hearing on the motions on December 14, 2017, and on March 7, 2018, the District Court denied plaintiff’s motion to amend and granted our motion to dismiss. On March 14, 2018, plaintiff appealed to the 8th Circuit. We had
$50
of cyber
threat insurance above a per incident deductible of
$1
at the time of the Criminal Intrusion, which we believe should cover any loss related to this litigation.
On June 30, 2015, we received a letter from the Office for Civil Rights of the U.S. Department of Health and Human Services (“OCR”) seeking documents and information regarding our HIPAA breach notification and reporting from 2009 to the present. The letter indicates that the OCR Midwest Region is doing a compliance review of our alleged failure to report small breaches of protected health information related to our pharmacy operations (e.g., any incident involving less than 500 individuals). On September 4, 2015, we submitted our response to OCR’s letter. While we do not believe that a loss is probable by reason of the compliance review, we believe that a loss is reasonably possible; however, at this time we cannot estimate a range of possible losses because the OCR’s review is at the early stages and we do not know if OCR will find a violation(s) and, if so, what violation(s) and whether OCR will proceed with corrective action, issuance of penalties or monetary settlement. The potential penalties related to the issues being investigated are up to
$50
thousand per violation (which can be counted per day) with a
$1.5
per calendar year maximum for multiple violations of a single provision (with the potential for finding violations of multiple provisions each with a separate
$1.5
per calendar year maximum); however, as noted above, any actual penalties will be determined only after consideration by OCR of various factors, including the nature of any violation, remedial actions taken by us and other factors determined relevant by OCR.
On September 21, 2016, our Farm Fresh retail banner, classified as discontinued operations, received an administrative subpoena issued by the Drug Enforcement Administration (“DEA”). In addition to requesting information on Farm Fresh’s pharmacy policies and procedures generally, the subpoena also requested the production of documents that are required to be kept and maintained by Farm Fresh pursuant to the Controlled Substances Act and its implementing regulations. On November 23, 2016, Farm Fresh responded to the subpoena and is cooperating fully with DEA’s additional requests for information. On February 8, 2018, Farm Fresh received a letter from the US Attorney’s Office asserting violations of the Controlled Substances Act and the potential for penalties. Farm Fresh’s response to the alleged violations was due April 30, 2018. In March 2018, representatives for Farm Fresh engaged in discussions with representatives for the DEA and the US Attorney’s Office. We are in settlement discussions with the U.S. Attorney’s Office and believe that a settlement of the matter is probable. We have reduced our prior accrual, which was recorded within discontinued operations, based on the probable settlement amounts reflecting information available to us at this time and our expectation that we will settle this matter for an immaterial amount.
Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. We regularly monitor our exposure to the loss contingencies associated with these matters and may from time to time change our predictions with respect to outcomes and estimates with respect to related costs and exposures.
With respect to the matters discussed above, we believe the chance of a material loss is remote. It is possible, although management believes that the likelihood is remote, that material differences in actual outcomes, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates, could have a material adverse effect on our financial condition, results of operations or cash flows.
NOTE 16—SEGMENT INFORMATION
Summary operating results by reportable segment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended September 8, 2018
|
|
Year-To-Date Ended September 8, 2018
|
|
Wholesale
|
|
Retail
|
|
Corporate
|
|
Total
|
|
Wholesale
|
|
Retail
|
|
Corporate
|
|
Total
|
Net sales
|
$
|
2,837
|
|
|
$
|
650
|
|
|
$
|
25
|
|
|
$
|
3,512
|
|
|
$
|
6,651
|
|
|
$
|
1,551
|
|
|
$
|
65
|
|
|
$
|
8,267
|
|
Cost of sales
|
2,745
|
|
|
473
|
|
|
—
|
|
|
3,218
|
|
|
6,421
|
|
|
1,124
|
|
|
—
|
|
|
7,545
|
|
Gross profit
|
92
|
|
|
177
|
|
|
25
|
|
|
294
|
|
|
230
|
|
|
427
|
|
|
65
|
|
|
722
|
|
Selling and administrative expenses
|
71
|
|
|
234
|
|
|
51
|
|
|
356
|
|
|
161
|
|
|
504
|
|
|
119
|
|
|
784
|
|
Operating earnings (loss)
|
$
|
21
|
|
|
$
|
(57
|
)
|
|
$
|
(26
|
)
|
|
$
|
(62
|
)
|
|
$
|
69
|
|
|
$
|
(77
|
)
|
|
$
|
(54
|
)
|
|
$
|
(62
|
)
|
Interest expense, net
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
76
|
|
Net periodic benefit income, excluding service cost
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
(21
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
Loss from continuing operations before income taxes
|
|
|
|
|
|
|
$
|
(80
|
)
|
|
|
|
|
|
|
|
$
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended September 9, 2017
|
|
Year-To-Date Ended September 9, 2017
|
|
Wholesale
|
|
Retail
|
|
Corporate
|
|
Total
|
|
Wholesale
|
|
Retail
|
|
Corporate
|
|
Total
|
Net sales
|
$
|
2,738
|
|
|
$
|
671
|
|
|
$
|
40
|
|
|
$
|
3,449
|
|
|
$
|
5,294
|
|
|
$
|
1,577
|
|
|
$
|
95
|
|
|
$
|
6,966
|
|
Cost of sales
|
2,623
|
|
|
486
|
|
|
—
|
|
|
3,109
|
|
|
5,060
|
|
|
1,135
|
|
|
—
|
|
|
6,195
|
|
Gross profit
|
115
|
|
|
185
|
|
|
40
|
|
|
340
|
|
|
234
|
|
|
442
|
|
|
95
|
|
|
771
|
|
Selling and administrative expenses
|
59
|
|
|
195
|
|
|
69
|
|
|
323
|
|
|
120
|
|
|
452
|
|
|
138
|
|
|
710
|
|
Operating earnings (loss)
|
$
|
56
|
|
|
$
|
(10
|
)
|
|
$
|
(29
|
)
|
|
$
|
17
|
|
|
$
|
114
|
|
|
$
|
(10
|
)
|
|
$
|
(43
|
)
|
|
$
|
61
|
|
Interest expense, net
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
73
|
|
Net periodic benefit income, excluding service cost
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
(29
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(2
|
)
|
(Loss) earnings from continuing operations before income taxes
|
|
|
|
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
$
|
19
|
|
NOTE 17—DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 2018, we announced that we are pursuing the sale of certain corporate owned and operated retail operations consisting of Farm Fresh, Shop ‘n Save, and Shop ‘n Save East. The results of operations, financial position and cash flows of these banners have been presented as discontinued operations and the related assets and liabilities have been reclassified as held-for-sale for all periods presented. These three retail banners were previously separate components included in our Retail reporting segment. In addition, discontinued operations includes the results of operations and cash flows attributed to the assets and liabilities of the Save-A-Lot business.
On September 17, 2018, we announced we had entered into a definitive agreement to sell 19 of our 36 St. Louis-based Shop ‘n Save stores, 15 in-store pharmacies, one stand-alone pharmacy, four fuel centers and all remaining prescription files to Schnuck Markets, Inc. (“Schnucks”). In addition to the cash consideration we expect to receive, Schnucks has agreed to assume the multi-employer pension obligations related to the Shop ‘n Save stores it has agreed to acquire, which we estimated the fair value to be $24. The transaction is expected to be completed by the end of October 2018, subject to customary closing conditions. In the event we cannot identify one or more buyers for the remaining Shop ‘n Save stores, they may be closed later this year. In addition, we entered into a supply agreement to serve as the primary supplier to nine Schnucks stores across northern Illinois, Iowa and Wisconsin. As our St. Louis distribution center predominantly serves Shop ‘n Save stores, we expect to close this distribution center later this year following the completion of the transaction and any sales or closures of remaining Shop ‘n Save stores. We expect to incur a loss on sale of approximately
$12
that will be recorded in the third quarter of fiscal 2019 based solely on the cash consideration received; however, we will also no longer have primary responsibility for the assumed off-balance sheet multiemployer pension obligations.
During the second quarter of fiscal 2019, we closed 13 of our 21 Shop ‘n Save East stores. We are continuing to pursue the sale of the remaining eight Shop ‘n Save East stores.
During the first quarter of fiscal 2019, we completed the sale of 21 of our 38 Farm Fresh stores to three different retailers: Harris Teeter, Kroger Mid-Atlantic Division, and Food Lion, and we completed the sale of the Farm Fresh pharmacy assets, for a total of
$53
. We recorded an income tax provision on the sale of the 21 stores and pharmacy assets of
$1
. During the second
quarter of fiscal 2019, we completed the sale of five additional Farm Fresh stores to Wholesale customers through lease assignments and subleases. The remaining stores were closed in the fiscal 2019 year-to-date.
Operating results of discontinued operations are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
Year-To-Date Ended
|
|
September 8,
2018
(12 weeks)
|
|
September 9,
2017
(12 weeks)
|
|
September 8,
2018
(28 weeks)
|
|
September 9,
2017
(28 weeks)
|
Net sales
|
$
|
189
|
|
|
$
|
351
|
|
|
$
|
539
|
|
|
$
|
838
|
|
Cost of sales
|
147
|
|
|
263
|
|
|
414
|
|
|
630
|
|
Gross profit
|
42
|
|
|
88
|
|
|
125
|
|
|
208
|
|
Selling and administrative expenses
|
47
|
|
|
124
|
|
|
159
|
|
|
239
|
|
Gain on sales
|
(2
|
)
|
|
—
|
|
|
(39
|
)
|
|
—
|
|
Operating (loss) earnings
|
(3
|
)
|
|
(36
|
)
|
|
5
|
|
|
(31
|
)
|
Interest expense, net
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
(Loss) earnings from discontinued operations before income taxes
|
(4
|
)
|
|
(37
|
)
|
|
4
|
|
|
(32
|
)
|
Income tax (benefit) provision
|
(1
|
)
|
|
(13
|
)
|
|
1
|
|
|
(11
|
)
|
(Loss) income from discontinued operations, net of tax
|
$
|
(3
|
)
|
|
$
|
(24
|
)
|
|
$
|
3
|
|
|
$
|
(21
|
)
|
The carrying amounts of major classes of assets and liabilities that were classified as held-for-sale on the Condensed Consolidated Balance Sheets were as follows:
|
|
|
|
|
|
|
|
|
|
September 8, 2018
|
|
February 24, 2018
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
4
|
|
|
$
|
7
|
|
Receivables, net
|
5
|
|
|
8
|
|
Inventories, net
|
51
|
|
|
109
|
|
Other current assets
|
3
|
|
|
6
|
|
Total current assets of discontinued operations
|
63
|
|
|
130
|
|
Long-term assets
|
|
|
|
Property, plant and equipment, net
|
54
|
|
|
74
|
|
Intangible assets, net
|
—
|
|
|
1
|
|
Deferred tax assets
|
8
|
|
|
8
|
|
Other assets
|
1
|
|
|
1
|
|
Total long-term assets of discontinued operations
|
63
|
|
|
84
|
|
Total assets of discontinued operations
|
$
|
126
|
|
|
$
|
214
|
|
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable
|
$
|
31
|
|
|
$
|
51
|
|
Accrued vacation, compensation and benefits
|
18
|
|
|
20
|
|
Current maturities of capital lease obligations
|
2
|
|
|
2
|
|
Other current liabilities
|
11
|
|
|
9
|
|
Total current liabilities of discontinued operations
|
62
|
|
|
82
|
|
Long-term liabilities
|
|
|
|
Long-term capital lease obligations
|
13
|
|
|
14
|
|
Other long-term liabilities
|
1
|
|
|
3
|
|
Total long-term liabilities of discontinued operations
|
14
|
|
|
17
|
|
Total liabilities of discontinued operations
|
76
|
|
|
99
|
|
Net assets of discontinued operations
|
$
|
50
|
|
|
$
|
115
|
|
NOTE 18—SUBSEQUENT EVENTS
Refer to
Note 17—Discontinued Operations
for information on the agreement to sell certain St. Louis-based Shop ‘n Save locations entered into by us on September 17, 2018.