Company Quick10K Filing
Quick10K
Supervalu
10-Q 2018-09-08 Quarter: 2018-09-08
10-Q 2018-06-16 Quarter: 2018-06-16
10-K 2018-02-24 Annual: 2018-02-24
10-Q 2017-12-02 Quarter: 2017-12-02
10-Q 2017-09-09 Quarter: 2017-09-09
10-Q 2017-06-17 Quarter: 2017-06-17
10-K 2017-02-25 Annual: 2017-02-25
10-Q 2016-12-03 Quarter: 2016-12-03
10-Q 2016-09-10 Quarter: 2016-09-10
10-Q 2016-06-18 Quarter: 2016-06-18
10-K 2016-02-27 Annual: 2016-02-27
10-Q 2015-12-05 Quarter: 2015-12-05
10-Q 2015-09-12 Quarter: 2015-09-12
10-Q 2015-06-20 Quarter: 2015-06-20
10-K 2015-02-28 Annual: 2015-02-28
10-Q 2014-11-29 Quarter: 2014-11-29
10-Q 2014-09-06 Quarter: 2014-09-06
10-Q 2014-06-14 Quarter: 2014-06-14
10-K 2014-02-22 Annual: 2014-02-22
10-Q 2013-11-30 Quarter: 2013-11-30
8-K 2018-10-22 Leave Agreement, M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2018-10-18 Shareholder Vote, Other Events, Exhibits
8-K 2018-10-11 Other Events
8-K 2018-10-10 Enter Agreement, Exhibits
8-K 2018-10-09 Other Events
8-K 2018-08-16 Shareholder Vote
8-K 2018-07-30 Enter Agreement, Other Events, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-07-25 Enter Agreement, Officers, Other Events, Exhibits
HON Honeywell 124,000
AM Antero Midstream Partners 6,200
FFIN First Financial Bankshares 4,190
MD Mednax 2,580
CISN Cision 1,720
OXM Oxford Industries 1,340
CCNE CNB Financial 430
WTER Alkaline Water 80
CARV Carver Bancorp 13
DIGAF Digatrade Financial 0
SVU 2018-09-08
Part I - Financial Information
Item 1. Financial Statements
Note 1-Summary of Significant Accounting Policies
Note 2-Recently Adopted and Issued Accounting Standards
Note 3-Revenue Recognition
Note 4-Business and Asset Acquisitions
Note 5-Reserves for Closed Properties and Property, Plant and Equipment-Related Impairment Charges
Note 6-Goodwill and Intangible Assets
Note 7-Fair Value Measurements
Note 8-Long-Term Debt
Note 9-Leases
Note 10-Benefit Plans
Note 11-Net (Loss) Earnings per Share
Note 12-Comprehensive (Loss) Income and Accumulated Comprehensive Loss
Note 13-Stock-Based Awards
Note 14-Income Taxes
Note 15-Commitments, Contingencies and Off-Balance Sheet Arrangements
Note 16-Segment Information
Note 18-Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 q2-f19ex101.htm
EX-12.1 q2-f19ex121.htm
EX-31.1 q2-f19ex311.htm
EX-31.2 q2-f19ex312.htm
EX-32.1 q2-f19ex321.htm
EX-32.2 q2-f19ex322.htm

Supervalu Earnings 2018-09-08

SVU 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 q2-f19form10xq.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period (12 weeks) ended September 8, 2018.
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number: 1-5418
 
svugraphica02a13.jpg
SUPERVALU INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
41-0617000
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
11840 VALLEY VIEW ROAD
EDEN PRAIRIE, MINNESOTA
 
55344
(Address of principal executive offices)
 
(Zip Code)
(952) 828-4000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer  ¨
 
Non-accelerated filer  ¨
 
Smaller reporting company ¨
 
Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x
As of October 9, 2018, there were 38,718,618 shares of the issuer’s common stock outstanding.
 



SUPERVALU INC. and Subsidiaries
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
Item
 
Page
 
 
 
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 
 
 




PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share data)
 
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
$
3,512

 
$
3,449

 
$
8,267

 
$
6,966

Cost of sales
3,218

 
3,109

 
7,545

 
6,195

Gross profit
294

 
340

 
722

 
771

Selling and administrative expenses
356

 
323

 
784

 
710

Operating (loss) earnings
(62
)
 
17

 
(62
)
 
61

Interest expense, net
27

 
30

 
76

 
73

Net periodic benefit income, excluding service cost
(9
)
 
(12
)
 
(21
)
 
(29
)
Equity in earnings of unconsolidated affiliates

 

 

 
(2
)
(Loss) earnings from continuing operations before income taxes
(80
)
 
(1
)
 
(117
)
 
19

Income tax (benefit) provision
(25
)
 

 
(35
)
 
11

Net (loss) earnings from continuing operations
(55
)
 
(1
)
 
(82
)
 
8

(Loss) income from discontinued operations, net of tax
(3
)
 
(24
)
 
3

 
(21
)
Net loss including noncontrolling interests
(58
)
 
(25
)
 
(79
)
 
(13
)
Less net loss (earnings) attributable to noncontrolling interests
1

 

 
1

 
(1
)
Net loss attributable to SUPERVALU INC.
$
(57
)
 
$
(25
)
 
$
(78
)
 
$
(14
)
 
 
 
 
 
 
 
 
Basic net loss 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 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
)
Weighted average number of shares outstanding:
 
 
 
 
 
 
 
Basic
39

 
38

 
39

 
38

Diluted
39

 
38

 
39

 
38


See Notes to Condensed Consolidated Financial Statements.

1


SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 
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 including noncontrolling interests
$
(58
)
 
$
(25
)
 
$
(79
)
 
$
(13
)
Other comprehensive income:
 
 
 
 
 
 
 
Recognition of pension and other postretirement benefit obligations(1)

 
(1
)
 

 
(1
)
Recognition of interest rate swap cash flow hedge(2)

 
1

 

 
1

Total other comprehensive income

 

 

 

Comprehensive loss including noncontrolling interest
(58
)
 
(25
)
 
(79
)
 
(13
)
Less comprehensive loss (income) attributable to noncontrolling interests
1

 

 
1

 
(1
)
Comprehensive loss attributable to SUPERVALU INC.
$
(57
)
 
$
(25
)
 
$
(78
)
 
$
(14
)
(1)
Amounts are net of tax expense (benefit) of $0, $0, $0 and $(1) for the second quarters of fiscal 2019 and 2018, and for fiscal 2019 and 2018 year-to-date, respectively.
(2)
Amounts are net of tax expense (benefit) of $0, $(1), $0 and $0 for the second quarters of fiscal 2019 and 2018, and for fiscal 2019 and 2018 year-to-date, respectively.

See Notes to Condensed Consolidated Financial Statements.


2


SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except par value data)
 
September 8, 2018
 
February 24, 2018
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
36

 
$
41

Receivables, net
638

 
590

Inventories, net
1,014

 
981

Other current assets
134

 
119

Current assets of discontinued operations
63

 
130

Total current assets
1,885

 
1,861

Property, plant and equipment, net
994

 
1,342

Goodwill
775

 
780

Intangible assets, net
116

 
131

Deferred tax assets
95

 
63

Other assets
128

 
126

Long-term assets of discontinued operations
63

 
84

Total assets
$
4,056

 
$
4,387

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
1,158

 
$
1,139

Accrued vacation, compensation and benefits
179

 
187

Current maturities of long-term debt and capital lease obligations
30

 
34

Other current liabilities
132

 
106

Current liabilities of discontinued operations
62

 
82

Total current liabilities
1,561

 
1,548

Long-term debt
1,423

 
1,724

Long-term capital lease obligations
134

 
149

Pension and other postretirement benefit obligations
239

 
265

Long-term tax liabilities
53

 
44

Other long-term liabilities
197

 
133

Long-term liabilities of discontinued operations
14

 
17

Commitments and contingencies

 

Stockholders’ equity
 
 
 
Common stock, $0.01 par value: 57 shares authorized; 39 and 38 shares issued, respectively

 

Capital in excess of par value
2,855

 
2,848

Treasury stock, at cost, 0 and 0 shares, respectively
(1
)
 
(3
)
Accumulated other comprehensive loss
(271
)
 
(210
)
Accumulated deficit
(2,147
)
 
(2,130
)
Total SUPERVALU INC. stockholders’ equity
436

 
505

Noncontrolling interests
(1
)
 
2

Total stockholders’ equity
435

 
507

Total liabilities and stockholders’ equity
$
4,056

 
$
4,387


See Notes to Condensed Consolidated Financial Statements.

3


SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions)
 
Common
Stock
 
Capital in Excess of Par Value
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
SUPERVALU INC.
Stockholders’
Equity
 
Non-controlling
Interests
 
Total
Stockholders’
Equity
Balances as of February 25, 2017
$

 
$
2,831

 
$
(2
)
 
$
(278
)
 
$
(2,175
)
 
$
376

 
$
7

 
$
383

Net (loss) earnings

 

 

 

 
(14
)
 
(14
)
 
1

 
(13
)
Other comprehensive income, net of tax of $0

 

 

 

 

 

 

 

Stock-based compensation

 
11

 

 

 

 
11

 

 
11

Restricted stock issued and vested

 
(1
)
 

 

 

 
(1
)
 

 
(1
)
Restricted stock forfeitures

 
1

 
(1
)
 

 

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 
(3
)
 
(3
)
Acquisition of noncontrolling interests

 
(2
)
 

 

 

 
(2
)
 
(2
)
 
(4
)
Balances as of September 9, 2017
$

 
$
2,840

 
$
(3
)
 
$
(278
)
 
$
(2,189
)
 
$
370

 
$
3

 
$
373

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances as of February 24, 2018
$

 
$
2,848

 
$
(3
)
 
$
(210
)
 
$
(2,130
)
 
$
505

 
$
2

 
$
507

Net loss

 

 

 

 
(78
)
 
(78
)
 
(1
)
 
(79
)
Cumulative effect of accounting standard adoptions

 

 

 
(61
)
 
61

 

 

 

Other comprehensive income, net of tax of $0

 

 

 

 

 

 

 

Sales of common stock under option plans

 
(1
)
 
2

 

 

 
1

 

 
1

Stock-based compensation

 
10

 

 

 

 
10

 

 
10

Distributions to noncontrolling interests

 

 

 

 

 

 
(2
)
 
(2
)
Shares traded for taxes and other

 
(2
)
 

 

 

 
(2
)
 

 
(2
)
Balances as of September 8, 2018
$

 
$
2,855

 
$
(1
)
 
$
(271
)
 
$
(2,147
)
 
$
436

 
$
(1
)
 
$
435

See Notes to Condensed Consolidated Financial Statements.


4


SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
Year-To-Date Ended
 
September 8, 
 2018 
 (28 weeks)
 
September 9, 
 2017 
 (28 weeks)
Cash flows from operating activities
 
 
 
Net loss including noncontrolling interests
$
(79
)
 
$
(13
)
Income (loss) from discontinued operations, net of tax
3

 
(21
)
Net (loss) earnings from continuing operations
(82
)
 
8

Adjustments to reconcile Net (loss) earnings from continuing operations to Net cash (used in) provided by operating activities – continuing operations:

 
 
Asset impairment and other charges
69

 

Loss on debt extinguishment
7

 
5

Net gain on sale of assets and exits of surplus leases
(7
)
 
(5
)
Depreciation and amortization
113

 
100

LIFO charge
4

 
2

Deferred income taxes
4

 
6

Stock-based compensation
12

 
10

Net pension and other postretirement income
(21
)
 
(29
)
Contributions to pension and other postretirement benefit plans
(6
)
 
(1
)
Other adjustments
6

 
6

Changes in operating assets and liabilities, net of effects from business acquisitions
(115
)
 
(32
)
Net cash (used in) provided by operating activities—continuing operations
(16
)
 
70

Net cash provided by (used in) operating activities—discontinued operations
6

 
(10
)
Net cash (used in) provided by operating activities
(10
)
 
60

Cash flows from investing activities
 
 
 
Proceeds from sale of assets
386

 
4

Purchases of property, plant and equipment
(110
)
 
(109
)
Payments for business acquisitions

 
(105
)
Other

 
2

Net cash provided by (used in) investing activities—continuing operations
276

 
(208
)
Net cash provided by (used in) investing activities—discontinued operations
59

 
(5
)
Net cash provided by (used in) investing activities
335

 
(213
)
Cash flows from financing activities
 
 
 
Proceeds from revolving credit facility
2,479

 
80

Payments on revolving credit facility
(2,423
)
 
(80
)
Proceeds from issuance of debt
18

 
875

Payments of debt and capital lease obligations
(398
)
 
(824
)
Proceeds from sale of common stock
1

 

Payments for shares traded for taxes
(3
)
 
(3
)
Payments for debt financing costs
(4
)
 
(9
)
Payments to acquire noncontrolling interest

 
(5
)
Distributions to noncontrolling interests
(2
)
 
(3
)
Net cash (used in) provided by financing activities—continuing operations
(332
)
 
31

Net cash used in financing activities—discontinued operations
(1
)
 
(1
)
Net cash (used in) provided by financing activities
(333
)
 
30

Net decrease in cash and cash equivalents
(8
)
 
(123
)
Cash and cash equivalents at beginning of period
48

 
332

Cash and cash equivalents at end of period
$
40

 
$
209

Less cash and cash equivalents of discontinued operations at end of period
(4
)
 
(6
)
Cash and cash equivalents of continuing operations at end of period
$
36

 
$
203

SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities were as follows:
 
 
 
Purchases of property, plant and equipment included in Accounts payable
$
16

 
$
21

Capital lease asset additions
$

 
$
1

Interest and income taxes paid:
 
 
 
Interest paid, net of amounts capitalized
$
67

 
$
63

Income taxes (refunded) paid, net
$
(2
)
 
$
48

See Notes to Condensed Consolidated Financial Statements.

5


SUPERVALU INC. and Subsidiaries
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.

6


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

7


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

8


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

9


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.

10


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.

11


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.

12


 
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.

13


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.

14


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.

15


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

16


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

17


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.

18


 
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


19


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
)