SUPERVALU INC - FORM 10-Q - January 10, 2018

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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 December 2, 2017.
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
 
svugraphica02a09.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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 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 January 5, 2018, there were 38,408,594 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)
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 2, 
 2017 
 (12 weeks)
 
December 3, 
 2016 
 (12 weeks)
 
December 2, 
 2017 
 (40 weeks)
 
December 3, 
 2016 
 (40 weeks)
Net sales
$
3,938

 
$
3,003

 
$
11,742

 
$
9,573

Cost of sales
3,529

 
2,596

 
10,354

 
8,221

Gross profit
409

 
407

 
1,388

 
1,352

Selling and administrative expenses
370

 
391

 
1,289

 
1,189

Goodwill impairment charge
—

 
15

 
—

 
15

Operating earnings
39

 
1

 
99

 
148

Interest expense, net
29

 
40

 
103

 
141

Equity in earnings of unconsolidated affiliates
—

 
(1
)
 
(2
)
 
(3
)
Earnings (loss) from continuing operations before income taxes
10

 
(38
)
 
(2
)
 
10

Income tax benefit
(8
)
 
(27
)
 
(7
)
 
(11
)
Net earnings (loss) from continuing operations
18

 
(11
)
 
5

 
21

Income (loss) from discontinued operations, net of tax
8

 
(14
)
 
8

 
33

Net earnings (loss) including noncontrolling interests
26

 
(25
)
 
13

 
54

Less net earnings attributable to noncontrolling interests
—

 
(1
)
 
(1
)
 
(3
)
Net earnings (loss) attributable to SUPERVALU INC.
$
26

 
$
(26
)
 
$
12

 
$
51

 
 
 
 
 
 
 
 
Basic net earnings (loss) per share attributable to SUPERVALU INC.:(1)
Continuing operations
$
0.47

 
$
(0.31
)
 
$
0.12

 
$
0.49

Discontinued operations
$
0.21

 
$
(0.39
)
 
$
0.20

 
$
0.85

Basic net earnings (loss) per share
$
0.67

 
$
(0.69
)
 
$
0.32

 
$
1.34

Diluted net earnings (loss) per share attributable to SUPERVALU INC.:(1)
Continuing operations
$
0.46

 
$
(0.31
)
 
$
0.12

 
$
0.48

Discontinued operations
$
0.21

 
$
(0.39
)
 
$
0.20

 
$
0.84

Diluted net earnings (loss) per share
$
0.67

 
$
(0.69
)
 
$
0.31

 
$
1.33

Weighted average number of shares outstanding:(1)
 
 
 
 
 
 
 
Basic
38

 
38

 
38

 
38

Diluted
38

 
38

 
38

 
38

(1)
Per share and shares outstanding figures have been restated to give effect to the 1-for-7 reverse stock split effective on August 1, 2017. Refer to Note 8—Net Earnings (Loss) Per Share for additional information regarding the reverse stock split.

See Notes to Condensed Consolidated Financial Statements.

1

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 2, 
 2017 
 (12 weeks)
 
December 3, 
 2016 
 (12 weeks)
 
December 2, 
 2017 
 (40 weeks)
 
December 3, 
 2016 
 (40 weeks)
Net earnings (loss) including noncontrolling interests
$
26

 
$
(25
)
 
$
13

 
$
54

Other comprehensive income:
 
 
 
 
 
 
 
Recognition of pension and other postretirement benefit obligations(1)
(1
)
 
102

 
(2
)
 
113

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

 
2

 
2

 
2

Total other comprehensive income
—

 
104

 
—

 
115

Comprehensive income including noncontrolling interests
26

 
79

 
13

 
169

Less comprehensive income attributable to noncontrolling interests
—

 
(1
)
 
(1
)
 
(3
)
Comprehensive income attributable to SUPERVALU INC.
$
26

 
$
78

 
$
12

 
$
166

(1)
Amounts are net of tax expense (benefit) of $0, $49, $(1) and $55 for the third quarters of fiscal 2018 and 2017, and for fiscal 2018 and 2017 year-to-date, respectively.
(2)
Amounts are net of tax expense of $0, $1, $1 and $1 for the third quarters of fiscal 2018 and 2017, and for fiscal 2018 and 2017 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)
 
December 2, 2017
 
February 25, 2017
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
46

 
$
332

Receivables, net
581

 
386

Inventories, net
1,265

 
764

Other current assets
133

 
59

Total current assets
2,025

 
1,541

Property, plant and equipment, net
1,319

 
1,004

Goodwill
739

 
710

Intangible assets, net
83

 
39

Deferred tax assets
156

 
165

Other assets
145

 
121

Total assets
$
4,467

 
$
3,580

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
1,261

 
$
881

Accrued vacation, compensation and benefits
222

 
150

Current maturities of long-term debt and capital lease obligations
34

 
26

Other current liabilities
117

 
172

Total current liabilities
1,634

 
1,229

Long-term debt
1,700

 
1,263

Long-term capital lease obligations
172

 
186

Pension and other postretirement benefit obligations
383

 
322

Long-term tax liabilities
42

 
63

Other long-term liabilities
133

 
134

Commitments and contingencies

 

Stockholders’ equity(1)
 
 
 
Common stock, $0.01 par value: 57 shares authorized; 38 and 38 shares issued, respectively
—

 
—

Capital in excess of par value
2,844

 
2,831

Treasury stock, at cost, 0 and 0 shares, respectively
(3
)
 
(2
)
Accumulated other comprehensive loss
(278
)
 
(278
)
Accumulated deficit
(2,163
)
 
(2,175
)
Total SUPERVALU INC. stockholders’ equity
400

 
376

Noncontrolling interests
3

 
7

Total stockholders’ equity
403

 
383

Total liabilities and stockholders’ equity
$
4,467

 
$
3,580

(1)
Per share and shares outstanding figures have been restated to give effect to the 1-for-7 reverse stock split effective on August 1, 2017. Refer to Note 8—Net Earnings (Loss) Per Share for additional information regarding the reverse stock split.

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 27, 2016
$
—

 
$
2,811

 
$
(5
)
 
$
(422
)
 
$
(2,825
)
 
$
(441
)
 
$
8

 
$
(433
)
Net earnings
—

 
—

 
—

 
—

 
51

 
51

 
3

 
54

Other comprehensive income, net of tax of $56
—

 
—

 
—

 
115

 
—

 
115

 
—

 
115

Sales of common stock under option plans
—

 
(3
)
 
6

 
—

 
—

 
3

 
—

 
3

Stock-based compensation
—

 
16

 
—

 
—

 
—

 
16

 
—

 
16

Restricted stock issued and vested
—

 
(5
)
 
5

 
—

 
—

 
—

 
—

 
—

Restricted stock forfeitures
—

 
4

 
(4
)
 
—

 
—

 
—

 
—

 
—

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(6
)
 
(6
)
Tax impact on stock-based awards, shares traded for taxes and other
—

 
—

 
(2
)
 
—

 
—

 
(2
)
 
—

 
(2
)
Balances as of December 3, 2016
$
—

 
$
2,823

 
$
—

 
$
(307
)
 
$
(2,774
)
 
$
(258
)
 
$
5

 
$
(253
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances as of February 25, 2017
$
—

 
$
2,831

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

 
$
7

 
$
383

Net earnings
—

 
—

 
—

 
—

 
12

 
12

 
1

 
13

Other comprehensive income, net of tax of $0
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
15

 
—

 
—

 
—

 
15

 
—

 
15

Restricted stock issued and vested
—

 
(1
)
 
1

 
—

 
—

 
—

 
—

 
—

Restricted stock forfeitures
—

 
1

 
(1
)
 
—

 
—

 
—

 
—

 
—

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(3
)
 
(3
)
Acquisition of noncontrolling interests
—

 
(3
)
 
—

 
—

 
—

 
(3
)
 
(2
)
 
(5
)
Shares traded for taxes and other
—

 
1

 
(1
)
 
—

 
—

 
—

 
—

 
—

Balances as of December 2, 2017
$
—

 
$
2,844

 
$
(3
)
 
$
(278
)
 
$
(2,163
)
 
$
400

 
$
3

 
$
403

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
 
December 2, 
 2017 
 (40 weeks)
 
December 3, 
 2016 
 (40 weeks)
Cash flows from operating activities
 
 
 
Net earnings including noncontrolling interests
$
13

 
$
54

Income from discontinued operations, net of tax
8

 
33

Net earnings from continuing operations
5

 
21

Adjustments to reconcile Net earnings from continuing operations to Net cash (used in) provided by operating activities – continuing operations:
 
 
 
Goodwill impairment charge
—

 
15

Asset impairment and other charges
44

 
4

Loss on debt extinguishment
5

 
7

Net gain on sale of assets and exits of surplus leases
(4
)
 
(1
)
Depreciation and amortization
160

 
159

LIFO charge
4

 
3

Deferred income taxes
8

 
5

Stock-based compensation
15

 
13

Net pension and other postretirement benefit (income) expense
(42
)
 
23

Contributions to pension and other postretirement benefit plans
(2
)
 
(2
)
Other adjustments
8

 
6

Changes in operating assets and liabilities, net of effects from business acquisitions
(245
)
 
(103
)
Net cash (used in) provided by operating activities – continuing operations
(44
)
 
150

Net cash (used in) provided by operating activities – discontinued operations
(54
)
 
69

Net cash (used in) provided by operating activities
(98
)
 
219

Cash flows from investing activities
 
 
 
Proceeds from sale of assets
5

 
2

Purchases of property, plant and equipment
(234
)
 
(118
)
Payments for business acquisitions
(105
)
 
(20
)
Other
6

 
(1
)
Net cash used in investing activities – continuing operations
(328
)
 
(137
)
Net cash provided by (used in) investing activities – discontinued operations
3

 
(65
)
Net cash used in investing activities
(325
)
 
(202
)
Cash flows from financing activities
 
 
 
Proceeds from revolving credit facility
540

 
2,837

Payments on revolving credit facility
(430
)
 
(2,715
)
Proceeds from issuance of debt
878

 
—

Payments of debt and capital lease obligations
(834
)
 
(121
)
Proceeds from sale of common stock
—

 
3

Payments for shares traded for taxes
(3
)
 
(2
)
Payments for debt financing costs
(10
)
 
(6
)
Distributions to noncontrolling interests
(3
)
 
(6
)
Other
(1
)
 
—

Net cash provided by (used in) financing activities
137

 
(10
)
Net (decrease) increase in cash and cash equivalents
(286
)
 
7

Cash and cash equivalents at beginning of period
332

 
57

Cash and cash equivalents at the end of period
$
46

 
$
64

Less cash and cash equivalents of discontinued operations at end of period
—

 
(17
)
Cash and cash equivalents of continuing operations at end of period
$
46

 
$
47

SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities were as follows:
 
 
 
Purchases of property, plant and equipment included in Accounts payable
$
25

 
$
25

Capital lease asset additions
$
1

 
$
15

Interest and income taxes paid:
 
 
 
Interest paid, net of amounts capitalized
$
111

 
$
136

Income taxes paid, net
$
49

 
$
12

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 third quarters ended December 2, 2017 and December 3, 2016 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 Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017. The results of operations for the third quarter ended December 2, 2017 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 Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017.
Fiscal Year
Supervalu operates on a 52/53 week fiscal year basis, with its fiscal year ending on the last Saturday in February. References to the third quarters of fiscal 2018 and 2017 relate to the 12 week fiscal quarters ended December 2, 2017 and December 3, 2016, respectively. References to fiscal 2018 and 2017 year-to-date relate to the 40 week fiscal periods ended December 2, 2017 and December 3, 2016, respectively.
Use of Estimates
The preparation of Supervalu’s Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States 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
Supervalu considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Supervalu’s banking arrangements allow Supervalu to fund outstanding checks when presented to the financial institution for payment. Supervalu funds 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 December 2, 2017 and February 25, 2017, Supervalu had net book overdrafts of $153 and $91, respectively.
Inventories, Net
Inventories are valued at the lower of cost or market. Substantially all of Supervalu’s inventories consist of finished goods and a substantial portion of Supervalu’s inventories have a last-in, first-out (“LIFO”) reserve applied. Interim LIFO calculations are based on Supervalu’s 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 $219 at December 2, 2017 and $216 at February 25, 2017. Supervalu recorded a LIFO charge of $1 and $1 for the third quarters ended December 2, 2017 and December 3, 2016, respectively. Supervalu recorded a LIFO charge of $4 and $3 for fiscal 2018 and 2017 year-to-date, respectively.

6

Recently Adopted Accounting Standards
In March 2016, the Financial Accounting Standards Board (the “FASB”) issued authoritative guidance under Accounting Standards Update (“ASU”) 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Supervalu adopted this guidance in the first quarter of fiscal 2018, which resulted in $5 of additional income tax expense that would have been recorded as an adjustment to Additional paid-in-capital under previous authoritative guidance. The adoption resulted in the presentation of payments for shares traded for taxes within financing activities, which resulted in the retrospective revision of the Condensed Consolidated Statements of Cash Flows. In addition, estimated forfeitures continued to be recorded as stock-based compensation expense.
Recently Issued Accounting Standards
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. Supervalu is required to adopt this new guidance in the first quarter of fiscal 2019. Supervalu expects to reclassify non-service cost components of net benefit cost to an other income and expense line in the Consolidated Statements of Operations upon adoption.
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. Supervalu is required to adopt this new guidance in the first quarter of fiscal 2019. Supervalu is currently evaluating the potential impact of adoption of this standard on its 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 today’s “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. Supervalu is required to adopt this new guidance in the first quarter of fiscal 2021. Supervalu is currently evaluating the potential impact of adoption of this standard on its 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, Supervalu will be required to recognize most leases on its balance sheet at the beginning of the earliest comparative period presented with a corresponding adjustment to stockholders’ equity (deficit). ASU 2016-02 requires Supervalu to capitalize most current operating lease obligations as right-of-use assets with a corresponding liability based on the present value of future operating leases. 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. Supervalu is required to adopt this new guidance in the first quarter of fiscal 2020. Supervalu is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements. For a quantification of Supervalu’s off-balance sheet operating leases subject to capitalization under ASU 2016-02, other than those reserved for as a closed property and certain agreements that may be deemed leases under the new authoritative guidance, refer to total operating lease obligations within Note 9—Leases in the Notes to Consolidated Financial Statements included in Part II, Item 8 of Supervalu's Annual Report on Form 10-K for the fiscal year ended February 25, 2017.
In January 2016, the FASB issued authoritative guidance under ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 revises the classification, measurement and disclosure of investments in equity securities. Supervalu is required to adopt this new guidance in the first quarter of fiscal 2019. Supervalu is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.
In May 2014, the FASB issued authoritative guidance under ASU 2014-09, Revenue from Contracts with Customers (Topic 606): Revenue from Contracts with Customers. 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 goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The new guidance will be adopted by Supervalu during the first quarter of fiscal 2019, as permitted by ASU 2015-14,

7

Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The adoption will include 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). Adoption is allowed by either the full retrospective or modified retrospective approach.
Supervalu is currently evaluating which of the alternative approaches to adopting Topic 606 it will apply and the quantification of the impact of the adoption on its consolidated financial statements. Supervalu is also currently finalizing its accounting policies under Topic 606, quantifying the impact of adopting this standard, and designing and implementing internal controls for the adoption and recognition of revenue under Topic 606. Although the assessment is not yet complete, Supervalu currently believes that there will be relatively few changes to its Retail and Wholesale segments, which relate primarily to the recognition and classification of customer loyalty programs and the presentation of certain advertising programs, which are expected to increase revenues and expenses on the Consolidated Statements of Operations. Supervalu continues to evaluate arrangements where it has previously determined it was a principal to the transaction rather than acting as an agent, which may result in an increase or decrease in Net sales and Cost of sales, but will not have an impact on Operating earnings. Distribution contracts within Wholesale contain certain immaterial promises for goods or services that Supervalu believes will be immaterial in the context of the contracts. Supervalu expects to complete its evaluation in fiscal 2018. Upon conclusion of the revised revenue assessment, Supervalu will determine whether to adopt the guidance under the full retrospective or modified retrospective approach.

NOTE 2—BUSINESS AND ASSET ACQUISITIONS
Associated Grocers of Florida, Inc.
On December 8, 2017, Supervalu 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, and had annual sales of approximately $650 in its last fiscal year, which ended on July 29, 2017, estimated by Supervalu.
At the closing of the transaction, AG Merger Sub merged with and into AG Florida and AG Florida became a wholly owned subsidiary of Supervalu. 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.
No amounts of revenue or expenses of AG Florida were included in the third quarter of fiscal 2018 results of operations, financial position or cash flows of Supervalu since the business was not acquired until the fourth quarter of fiscal 2018. Supervalu incurred merger and integration costs of $2 in fiscal 2018 year-to-date related to the AG Florida acquisition.
Acquisition of Unified Grocers, Inc.
On June 23, 2017, Supervalu completed the acquisition of Unified Grocers, Inc. (“Unified”) pursuant to the terms of an Agreement and Plan of Merger dated April 10, 2017 (the “Merger Agreement”) by and among Supervalu, West Acquisition Corporation, a then wholly owned subsidiary of Supervalu (“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. The acquisition brought together two complementary companies that uniquely positions Supervalu to efficiently serve a broad range of independent customers and offer a diverse array of value added services, helping customers compete in an increasingly demanding grocery environment. In addition, the acquisition provides opportunities across multiple geographies and is an important part of Supervalu’s ongoing growth effort, including the expansion of Unified’s Market Centre division, a growing business providing specialty and ethnic products to independent customers.
At the closing of the transaction, Merger Sub merged with and into Unified. As a result of the transaction, Unified became a wholly owned subsidiary of Supervalu and the shares of Unified were converted into the right to receive from Supervalu $114 in cash in the aggregate.
Supervalu incurred merger and integration costs of $30 in fiscal 2018 year-to-date related to the Unified acquisition.

8

The table immediately below summarizes the preliminary fair values assigned to the Unified net assets acquired. As of December 2, 2017, the fair value allocation for the acquisition was preliminary and will be finalized when the valuation is completed. Differences between the preliminary and final allocation could be material. Supervalu’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as Supervalu finalizes the valuations of certain tangible and intangible assets acquired and liabilities assumed in connection with the acquisition. The primary areas of the purchase price allocation that are not yet finalized relate to real and personal property, identifiable intangible assets, goodwill, income taxes and deferred taxes.
 
Amounts as of the Acquisition Date
Cash and cash equivalents
$
9

Accounts receivable
176

Inventories
237

Other current assets
31

Property, plant and equipment
285

Goodwill
29

Intangible assets
54

Deferred tax assets
(19
)
Other assets
65

Accounts payable
(255
)
Other current liabilities
(89
)
Long-term debt and capital lease obligations
(270
)
Pension and other postretirement benefit obligations
(103
)
Other liabilities assumed
(36
)
Total fair value of net assets acquired
114

Less cash acquired
(9
)
Total consideration for acquisition, less cash acquired
$
105

Recognized goodwill is primarily attributable to expected synergies from combining operations, as well as intangible assets that do not qualify for separate recognition. Recognized intangible assets primarily reflect customer relationship intangible assets, which have a weighted average useful life of 15 years.
Combined Results
The following unaudited pro forma information presents the combined results of Supervalu and Unified as if Supervalu had completed the acquisition of Unified on February 27, 2016. 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 acquisition occurred at the beginning of the period being presented, nor are they indicative of future results of operations.
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 3, 
 2016 
 (12 weeks)(1)
 
December 2, 
 2017 
 (40 weeks)
 
December 3, 
 2016 
 (40 weeks)(1)
Net sales
$
3,906

 
$
12,972

 
$
12,509

Net (loss) earnings from continuing operations attributable to SUPERVALU INC.
$
(11
)
 
$
6

 
$
13

Basic net (loss) earnings from continuing operations per share attributable to SUPERVALU INC.
$
(0.30
)
 
$
0.15

 
$
0.33

Diluted net (loss) earnings from continuing operations per share attributable to SUPERVALU INC.
$
(0.30
)
 
$
0.15

 
$
0.33

(1)
The unaudited pro forma financial information of Unified included in these results reflects the 12 and 40 week fiscal periods ended November 19, 2016.

9

The pro forma financial disclosures for the AG Florida acquisition have not been included in this Quarterly Report on Form 10-Q for the 12 and 40 week fiscal periods ended December 2, 2017 because the information necessary to complete the disclosure was not yet available.
The acquisitions of AG Florida and Unified brought together complementary companies that uniquely position Supervalu to efficiently serve a broad range of independent customers and offer a diverse array of value added services, helping customers compete in an increasingly demanding grocery environment. In addition, the acquisitions provide opportunities across multiple geographies and are an important part of Supervalu’s ongoing growth effort, including international growth efforts and the expansion of Unified’s Market Centre division, a growing business providing specialty and ethnic products to independent customers.
Cub Franchised Stores
In fiscal 2018 year-to-date, Supervalu paid $5 to acquire the minority equity interests of five limited liability companies that own and operate five Cub stores. Supervalu now owns 100 percent of these companies. The results from these companies will continue to be consolidated in Supervalu's financial statements.
Distribution Center Asset Acquisition
In the third quarter of fiscal 2018, Supervalu paid $61 to acquire the land and building for a distribution center located in Joliet, Illinois. In fiscal 2018 year-to-date, Supervalu also paid $37 to acquire the land and building for a distribution center located in Harrisburg, Pennsylvania. The consideration paid for the acquired assets will be allocated based on the proportionate fair value of the underlying acquired assets prior to the facilities being placed into service.
NOTE 3—RESERVES FOR CLOSED PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT-RELATED IMPAIRMENT CHARGES
Reserves for Closed Properties
Changes in Supervalu’s reserves for closed properties consisted of the following:
 
December 2, 
 2017 
 (40 weeks)
Reserves for closed properties at beginning of the fiscal year
$
22

Additions
2

Payments
(6
)
Adjustments
(1
)
Reserves for closed properties at the end of period
$
17

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:
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 2, 
 2017 
 (12 weeks)
 
December 3, 
 2016 
 (12 weeks)
 
December 2, 
 2017 
 (40 weeks)
 
December 3, 
 2016 
 (40 weeks)
Property, plant and equipment:
 
 
 
 
 
 
 
Carrying value
$
2

 
$
—

 
$
100

 
$
4

Fair value measured using Level 3 inputs
—

 
—

 
56

 
2

Impairment charge
$
2

 
$
—

 
$
44

 
$
2


Supervalu monitors its long-lived assets for recoverability for indicators of impairment on an on-going basis and evaluates 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 2018, two Retail asset groups, which consisted of two separate Retail banners, indicated a decline in their results of operations and the cash flow projections of these two Retail asset groups declined compared to prior projections. As a result, the two Retail asset groups were selected for an undiscounted cash flow review. One of these Retail asset groups 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. The carrying value of the assets within this asset group were

10

determined to exceed their estimated fair value. The carrying values of these assets were reduced until such long-lived assets were recorded at the lower of their carrying value or fair value, resulting in an impairment charge of $42 in the second quarter of fiscal 2018, 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 $56. Significant judgments are required in measuring the fair value of asset groups, including the fair value of business, the fair value of the underlying individual assets, and cash flow projections of revenues and earnings.

NOTE 4—GOODWILL AND INTANGIBLE ASSETS
Changes in Supervalu’s Goodwill and Intangible assets, net consisted of the following:
 
February 25,
2017
 
Additions
 
Impairments
 
Other net
adjustments
 
December 2,
2017
Wholesale goodwill
$
710

 
$
29

 
$
—

 
$
—

 
$
739

 
 
 
 
 
 
 
 
 
 
Intangible assets:
 
 
 
 
 
 
 
 
 
Customer lists, favorable operating leases, prescription files and other
$
141

 
$
54

 
$
—

 
$
(2
)
 
$
193

Trademarks and tradenames – indefinite useful lives
5

 
—

 
—

 
—

 
5

Total intangible assets
146

 
54

 
—

 
(2
)
 
198

Accumulated amortization
(107
)
 
(10
)
 
—

 
2

 
(115
)
Total intangible assets, net
$
39

 
 
 
 
 
 
 
$
83

Amortization of intangible assets with definite useful lives was $10 and $7 for fiscal 2018 and 2017 year-to-date, respectively. Future amortization expense is anticipated to be approximately $3, and $10, $9, $8, $7 and $6 for the remainder of fiscal 2018, and for fiscal 2019, 2020, 2021, 2022 and 2023, respectively.
NOTE 5—FAIR VALUE MEASUREMENTS
Recurring fair value measurements were as follows:
 
 
 
December 2, 2017
 
Balance Sheet Location
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Deferred compensation
Other assets
 
$
4

 
$
—

 
$
—

 
$
4

Total
 
 
$
4

 
$
—

 
$
—

 
$
4

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Interest rate swap derivative
Other current liabilities
 
$
—

 
$
1

 
$
—

 
$
1

Interest rate swap derivative
Other long-term liabilities
 
—

 
—

 
—

 
—

Total
 
 
$
—

 
$
1

 
$
—

 
$
1


 
 
 
February 25, 2017
 
Balance Sheet Location
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Deferred compensation
Other assets
 
$
5

 
$
—

 
$
—

 
$
5

Total
 
 
$
5

 
$
—

 
$
—

 
$
5

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Interest rate swap derivative
Other current liabilities
 
$
—

 
$
2

 
$
—

 
$
2

Interest rate swap derivative
Other long-term liabilities
 
—

 
1

 
—

 
1

Total
 
 
$
—

 
$
3

 
$
—

 
$
3


11

Diesel Fuel Derivatives
Fuel derivative gains are included within Cost of sales in the Condensed Consolidated Statements of Operations and were $0 and $0 for the third quarters of fiscal 2018 and 2017, respectively, and $0 and $0 for fiscal 2018 and 2017 year-to-date, respectively.
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 $1 and $2 in the third quarters of fiscal 2018 and 2017, respectively, and $3 and $3 for fiscal 2018 and 2017 year-to-date, respectively. No amounts were reclassified related to hedging ineffectiveness.
As of December 2, 2017, a 100 basis point increase in forward LIBOR interest rates would increase the fair value of the interest rate swap by approximately $4 and a 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swap by approximately $3.
Non-recurring Fair Value Measurements
Acquired net assets related to Unified discussed in Note 2—Business and Asset Acquisitions and impairment charges related to goodwill and intangible assets discussed in Note 4—Goodwill and Intangible Assets and to property, plant and equipment discussed in Note 3—Reserves for Closed Properties and Property, Plant and Equipment-related Impairment Charges were measured at fair value using Level 3 inputs.
Fair Value Estimates
For certain of Supervalu’s 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 greater than their carrying amount by approximately $0 and $0 as of December 2, 2017 and February 25, 2017, 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 Supervalu’s long-term debt was lower than the carrying amount, excluding debt financing costs, by approximately $57 as of December 2, 2017 and equal to the carrying amount, excluding debt financing costs, as of February 25, 2017. 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 6—LONG-TERM DEBT
Supervalu’s long-term debt consisted of the following:
 
December 2,
2017
 
February 25,
2017
4.85% Secured Term Loan Facility due June 2024
$
836

 
$
—

5.54% Secured Term Loan Facility due March 2019
—

 
524

6.75% Senior Notes due June 2021
400

 
400

7.75% Senior Notes due November 2022
350

 
350

2.50% to 4.50% Revolving ABL Credit Facility due February 2021
110

 
—

Other
40

 
—

Debt financing costs, net
(25
)
 
(10
)
Original issue discount on debt
(3
)
 
(1
)
Total debt
1,708

 
1,263

Less current maturities of long-term debt
(8
)
 
—

Long-term debt
$
1,700

 
$
1,263

Supervalu’s credit facilities and certain long-term debt agreements have restrictive covenants and cross-default provisions, which generally provide, subject to Supervalu’s 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. Supervalu was in compliance with all such covenants and provisions for all periods presented.

12

Senior Secured Credit Agreements
During the first quarter of fiscal 2018, Supervalu entered into a fourth amendment agreement (the “Fourth Term Loan Amendment”) amending and restating its Secured Term Loan Facility due March 2019 (the “Secured Term Loan Facility due March 2019” and as amended and restated, the “Secured Term Loan Facility”). The Secured Term Loan Facility provides for (i) an initial term loan facility of $525, which was drawn down in full to refinance outstanding loans under the Secured Term Loan Facility due March 2019, and (ii) a delayed draw term loan facility of $315, which was drawn down in full in the second quarter of fiscal 2018 for the purpose of consummating the acquisition of Unified. Borrowings under 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, compared to the rate under the Secured Term Loan Facility due March 2019 of LIBOR plus 4.50 percent with a floor of 1.00 percent. The Secured Term Loan Facility will mature on June 8, 2024. However, if Supervalu has not repaid its 6.75 percent Senior Notes due June 2021 or its 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, Supervalu 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. On June 23, 2017, in connection with the closing of the acquisition of Unified, Supervalu executed the delayed draw under the Secured Term Loan Facility and increased the outstanding borrowings under the facility to $840.
The Secured Term Loan Facility is secured by substantially all of Supervalu’s real estate, equipment and certain other assets. The Secured Term Loan Facility is guaranteed by Supervalu’s 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 December 2, 2017 and February 25, 2017, there was $713 and $520, 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 Supervalu’s $1,000 asset-based revolving credit facility (the “Revolving ABL Credit Facility”). As of December 2, 2017 and February 25, 2017, $8 and $0 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 and, in certain circumstances, a prepayment fee. Pursuant to the Secured Term Loan Facility, Supervalu 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. Supervalu 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 Supervalu’s 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 Supervalu’s Total Secured Leverage Ratio (as defined in the facility) as of the last day of fiscal 2017, no prepayment from Excess Cash Flow in fiscal 2017 was required in fiscal 2018. The potential amount of prepayment from Excess Cash Flow in fiscal 2018 that may be required in fiscal 2019 is not reasonably estimable as of December 2, 2017.

13

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 Supervalu’s material subsidiaries are co-borrowers under the Revolving ABL Credit Facility, and this facility is guaranteed by the rest of Supervalu’s 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 Supervalu’s outstanding debt instruments and leases.
As of December 2, 2017 and February 25, 2017, there were $110 and $0, respectively, of outstanding borrowings under the Revolving ABL Credit Facility. 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):
 
December 2, 2017
 
February 25, 2017
Certain inventory assets included in Inventories, net
 
$
1,462

 
$
949

Certain receivables included in Receivables, net
 
393

 
228

Certain amounts included in Cash and cash equivalents
 
21

 
19

(1)
The Revolving ABL Credit Facility is also secured by all of Supervalu's pharmacy scripts included in Intangible assets, net.
Unused available credit and fees under the Revolving ABL Credit Facility:
 
December 2, 2017
 
February 25, 2017
Outstanding letters of credit
 
$
55

 
$
53

Letters of credit fees
 
1.375
%
 
1.375
%
Unused available credit
 
835

 
748

Unused facility fees
 
0.25
%
 
0.25
%
Both the Secured Term Loan Facility and the Revolving ABL Credit Facility limit Supervalu’s 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 taken by Supervalu, including prepayments of debt other than the senior notes and Permitted Investments (as defined in the Secured Term Loan Facility). As of December 2, 2017, 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 Supervalu. 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
The $400 of 6.75 percent Senior Notes due June 2021 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. Supervalu was in compliance with all such covenants and provisions for all periods presented.

14

NOTE 7—BENEFIT PLANS
Net periodic benefit (income) expense and contributions for defined benefit pension and other postretirement benefit plans consisted of the following:
 
Third Quarter Ended
Pension Benefits
 
Other Postretirement Benefits
December 2, 
 2017 
 (12 weeks)
 
December 3, 
 2016 
 (12 weeks)
 
December 2, 
 2017 
 (12 weeks)
 
December 3, 
 2016 
 (12 weeks)
Interest cost
$
20

 
$
20

 
$
1

 
$
—

Expected return on assets
(33
)
 
(33
)
 
—

 
—

Amortization of prior service benefit
—

 
—

 
(4
)
 
(2
)
Amortization of net actuarial loss
3

 
10

 
—

 
—

Pension settlement charge
—

 
41

 
—

 
—

Net periodic benefit (income) expense
$
(10
)
 
$
38

 
$
(3
)
 
$
(2
)
Contributions to benefit plans
$
—

 
$
—

 
$
(1
)
 
$
—

 
Year-To-Date Ended
Pension Benefits
 
Other Postretirement Benefits
December 2, 
 2017 
 (40 weeks)
 
December 3, 
 2016 
 (40 weeks)
 
December 2, 
 2017 
 (40 weeks)
 
December 3, 
 2016 
 (40 weeks)
Interest cost
$
64

 
$
66

 
$
2

 
$
1

Expected return on assets
(106
)
 
(110
)
 
—

 
—

Amortization of prior service benefit
—

 
—

 
(12
)
 
(10
)
Amortization of net actuarial loss
9

 
34

 
1

 
1

Pension settlement charge
—

 
41

 
—

 
—

Net periodic benefit (income) expense
$
(33
)
 
$
31

 
$
(9
)
 
$
(8
)
Contributions to benefit plans
$
(1
)
 
$
(2
)
 
$
(1
)
 
$
—

Multiemployer Pension Plans
During fiscal 2018 and 2017 year-to-date, Supervalu contributed $31 and $31, respectively, to various multiemployer pension plans, primarily defined benefit pension plans, under collective bargaining agreements. As part of the acquisition of Unified, Supervalu assumed the off-balance sheet multiemployer pension plan obligations of Unified.
Pension Contributions
No minimum contributions are required to Supervalu's pension plans in fiscal 2018 in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Supervalu anticipates fiscal 2018 discretionary pension contributions and required minimum other postretirement benefit plan contributions will be approximately $5 to $10.

NOTE 8—NET EARNINGS (LOSS) PER SHARE
Basic net earnings (loss) per share is calculated using net earnings (loss) attributable to SUPERVALU INC. divided by the weighted average number of shares outstanding during the period. Diluted net earnings (loss) per share is similar to basic net earnings (loss) per share except that the weighted average number of shares outstanding is computed after giving effect to the dilutive impacts of stock-based awards, if any.

15

The following table reflects the calculation of basic and diluted net earnings (loss) per share:
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 2, 
 2017 
 (12 weeks)
 
December 3, 
 2016 
 (12 weeks)
 
December 2, 
 2017 
 (40 weeks)
 
December 3, 
 2016 
 (40 weeks)
Net earnings (loss) from continuing operations
$
18

 
$
(11
)
 
$
5

 
$
21

Less net earnings attributable to noncontrolling interests
—

 
(1
)
 
(1
)
 
(3
)
Net earnings (loss) from continuing operations attributable to SUPERVALU INC.
18

 
(12
)
 
4

 
18

Income (loss) from discontinued operations, net of tax
8

 
(14
)
 
8

 
33

Net earnings (loss) attributable to SUPERVALU INC.
$
26

 
$
(26
)
 
$
12

 
$
51

 
 
 
 
 
 
 
 
Weighted average number of shares outstanding—basic
38

 
38

 
38

 
38

Dilutive impact of stock-based awards
—

 
—

 
—

 
—

Weighted average number of shares outstanding—diluted
38

 
38

 
38

 
38

 
 
 
 
 
 
 
 
Basic net earnings (loss) per share attributable to SUPERVALU INC.:
Continuing operations
$
0.47

 
$
(0.31
)
 
$
0.12

 
$
0.49

Discontinued operations
$
0.21

 
$
(0.39
)
 
$
0.20

 
$
0.85

Basic net earnings (loss) per share
$
0.67

 
$
(0.69
)
 
$
0.32

 
$
1.34

Diluted net earnings (loss) per share attributable to SUPERVALU INC.:
Continuing operations
$
0.46

 
$
(0.31
)
 
$
0.12

 
$
0.48

Discontinued operations
$
0.21

 
$
(0.39
)
 
$
0.20

 
$
0.84

Diluted net earnings (loss) per share
$
0.67

 
$
(0.69
)
 
$
0.31

 
$
1.33

Stock-based awards of 2 and 2 that were outstanding during the third quarters of fiscal 2018 and 2017, respectively, were excluded from the calculation of diluted net earnings per share from continuing operations for the periods because their inclusion would be antidilutive. Stock-based awards of 2 and 2 that were outstanding during fiscal 2018 and 2017 year-to-date, respectively, were excluded from the calculation of diluted net earnings per share from continuing operations for the periods because their inclusion would be antidilutive.
Reverse Stock Split
At the close of business on August 1, 2017, a 1-for-7 reverse split of Supervalu’s common stock became effective and the number of authorized shares of Supervalu’s common stock decreased to approximately 57, while the number of issued and outstanding shares was reduced from approximately 269 to 38. Supervalu's common stock began trading on a split-adjusted basis when the market opened on August 2, 2017. No fractional shares were issued from the reverse stock split. In lieu of any fractional shares, any holder of less than one share of common stock was entitled to receive cash for such holder’s fractional share. The reverse stock split did not impact the authorized number of shares of preferred stock of Supervalu, none of which were outstanding. The reverse stock split reduced the number of shares of common stock available for issuance under Supervalu’s equity compensation plans in proportion to the reverse stock split ratio. The reverse stock split caused a reduction in the number of shares of common stock issuable upon exercise or vesting of equity awards in proportion to the reverse stock split ratio and caused a proportionate increase in any exercise price of such awards. Supervalu’s common stock continues to trade on the NYSE under the symbol “SVU.”

NOTE 9—COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Supervalu reports comprehensive income 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. Supervalu’s 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.

16

Accumulated other comprehensive loss represents the cumulative balance of other comprehensive income (loss), 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 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
)
Other comprehensive income (loss) before reclassifications(1)
—

 
—

 
—

Amortization of amounts included in net periodic benefit income(2)
(2
)
 
—

 
(2
)
Amortization of cash flow hedge(3)
—

 
2

 
2

Net current-period Other comprehensive (loss) income(4)
(2
)
 
2

 
—

Accumulated other comprehensive loss at the end of period, net of tax
$
(278
)
 
$
—

 
$
(278
)
(1)Amount is net of tax expense of $0, $0 and $0, respectively.
(2)Amount is net of tax benefit of $(1), $0 and $(1), respectively.
(3)Amount is net of tax expense of $0, $1 and $1, respectively.
(4)Amount is net of tax (benefit) expense of $(1), $1 and $0, respectively.
Changes in Accumulated other comprehensive loss by component for fiscal 2017 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
$
(418
)
 
$
(4
)
 
$
(422
)
Other comprehensive loss before reclassifications(1)
69

 
—

 
69

Amortization of amounts included in net periodic benefit expense(2)
15

 
—

 
15

Amortization of cash flow hedge(3)
—

 
2

 
2

Pension settlement charge(4)
29

 
—

 
29

Net current-period Other comprehensive income(5)
113

 
2

 
115

Accumulated other comprehensive loss at the end of period, net of tax
$
(305
)
 
$
(2
)
 
$
(307
)
(1)Amount is net of tax expense of $33, $0 and $33, respectively.
(2)Amount is net of tax expense of $10, $0 and $10, respectively.
(3)Amount is net of tax expense of $0, $1 and $1, respectively.
(4)Amount is net of tax expense of $12, $0 and $12, respectively.
(5)Amount is net of tax expense of $55, $1 and $56, respectively.

17

Items reclassified out of Accumulated other comprehensive loss had the following impact on the Condensed Consolidated Statements of Operations:
 
Third Quarter Ended
 
Year-To-Date Ended
 
 
 
December 2, 
 2017 
 (12 weeks)
 
December 3, 
 2016 
 (12 weeks)
 
December 2, 
 2017 
 (40 weeks)
 
December 3, 
 2016 
 (40 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) expense(1)
$
(1
)
 
$
7

 
$
(3
)
 
$
23

 
Selling and administrative expenses
Amortization of amounts included in net periodic benefit (income) expense(1)
—

 
1

 
—

 
2

 
Cost of sales
Pension settlement charge
—

 
41

 
—

 
41

 
Selling and administrative expenses
Total reclassifications
(1
)
 
49

 
(3
)
 
66

 
 
Income tax (benefit) expense
—

 
(16
)
 
1

 
(22
)
 
Income tax benefit
Total reclassifications, net of tax
$
(1
)
 
$
33

 
$
(2
)
 
$
44

 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap cash flow hedge:
 
 
 
 
 
 
 
 
 
Reclassification of cash flow hedge
$
1

 
$
2

 
$
3

 
$
3

 
Interest expense, net
Income tax benefit
—

 
(1
)
 
(1
)
 
(1
)
 
Income tax benefit
Total reclassifications, net of tax
$
1

 
$
1

 
$
2

 
$
2

 
 
(1)
Amortization of amounts included in net periodic benefit income include amortization of prior service benefit and amortization of net actuarial loss as reflected in Note 7—Benefit Plans.
As of December 2, 2017, Supervalu expects to reclassify $1 out of Accumulated other comprehensive loss into Interest expense, net during the following twelve-month period.

NOTE 10—STOCK-BASED AWARDS
Supervalu 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, restricted stock awards and performance share units (collectively referred to as “stock-based awards”) of $4, $5, $15 and $13 for the third quarters of fiscal 2018 and 2017, and for fiscal 2018 and 2017 year-to-date, respectively. The following information on the stock-based awards gives effect to the reverse stock split.
Stock Options
In the first quarter of fiscal 2018 and 2017, Supervalu granted 36 thousand and 114 thousand non-qualified stock options, respectively, to certain employees under Supervalu’s 2012 Stock Plan with weighted average grant date fair values of $13.92 per share and $18.68 per share, respectively. The stock options vest over a period of three years and were awarded as part of a broad-based employee incentive program designed to retain and motivate employees across Supervalu. Supervalu used the Black-Scholes option pricing model to estimate the fair value of the options at grant date based upon the following assumptions:
 
Year-To-Date Ended
 
December 2, 
 2017 
 (40 weeks)
 
December 3, 
 2016 
 (40 weeks)
Dividend yield
—
%
 
—
%
Volatility rate
53.7
%
 
54.2
%
Risk-free interest rate
1.8
%
 
1.3
%
Expected life
5.0 years

 
5.0 years


18

Restricted Stock and Restricted Stock Units
In fiscal 2018 year-to-date, Supervalu granted 881 thousand restricted stock units (“RSUs”) to certain employees under the 2012 Stock Plan. The RSUs vest over a three-year period from the date of the grant and were granted at a fair value ranging from $15.03 to $29.19 per unit. In fiscal 2017 year-to-date, Supervalu granted 494 thousand RSUs to certain employees under the 2012 Stock Plan. The RSUs vest over a three-year period from the date of grant and were granted at a fair value ranging from $31.78 to $39.48 per unit.
Performance Share Units
In fiscal 2018 year-to-date, Supervalu granted 178 thousand performance share units (“PSUs”) to certain employees under the 2012 Stock Plan. The PSUs have a fiscal 2018-2020 performance period and settle in shares of Supervalu's common stock. In April 2016, Supervalu granted 180 thousand PSUs to certain employees under the 2012 Stock Plan. The PSUs have a fiscal 2017-2019 performance period and settle in shares of Supervalu’s common stock. Supervalu used the Monte Carlo method to estimate the fair value of the PSUs at grant date based upon the following assumptions:
 
Year-To-Date Ended
 
December 2, 
 2017 
 (40 weeks)
December 3, 
 2016 
 (40 weeks)
Dividend yield
—
%
—
%
Volatility rate
44.3
%
41.3
%
Risk-free interest rate
1.41
%
0.9
%
Expected life
2.8 years

2.8 years


NOTE 11—INCOME TAXES
Fiscal 2018 and 2017 year-to-date tax benefit included $6 and $12 of discrete tax benefits, respectively. The fiscal 2018 year-to-date discrete tax benefit was driven primarily by a reduction to the long-term tax liability related to uncertain tax positions due to the lapse of the statute of limitations, offset by the excess tax expense as a result of the adoption of ASU 2016-09. The fiscal 2017 year-to-date discrete tax benefit was driven primarily due to the pension settlement charge and certain deferred tax items.

19

NOTE 12—SEGMENT INFORMATION
Summary operating results by reportable segment consisted of the following:
 
Third Quarter Ended December 2, 2017
 
Year-To-Date Ended December 2, 2017
 
Wholesale
 
Retail
 
Corporate
 
Total
 
Wholesale
 
Retail
 
Corporate
 
Total
Net sales
$
2,888

 
$
1,017

 
$
33

 
$
3,938

 
$
8,182

 
$
3,432

 
$
128

 
$
11,742

Cost of sales
2,784

 
745

 
—

 
3,529

 
7,837

 
2,517

 
—

 
10,354

Gross profit
104

 
272

 
33

 
409

 
345

 
915

 
128

 
1,388

Selling and administrative expenses
58

 
278

 
34

 
370

 
176

 
983

 
130

 
1,289

Operating earnings (loss)
$
46

 
$
(6
)
 
$
(1
)
 
$
39

 
$
169

 
$
(68
)
 
$
(2
)
 
$
99

Interest expense, net
 
 
 
 
 
 
29

 
 
 
 
 
 
 
103

Equity in earnings of unconsolidated affiliates
 
 
 
 
 
 
—

 
 
 
 
 
 
 
(2
)
Earnings (loss) from continuing operations before income taxes
 
 
 
 
 
 
$
10

 

 

 

 
$
(2
)
 
Third Quarter Ended December 3, 2016
 
Year-To-Date Ended December 3, 2016
 
Wholesale
 
Retail
 
Corporate
 
Total
 
Wholesale
 
Retail
 
Corporate
 
Total
Net sales
$
1,906

 
$
1,060

 
$
37

 
$
3,003

 
$
5,912

 
$
3,524

 
$
137

 
$
9,573

Cost of sales
1,823

 
772

 
1

 
2,596

 
5,641

 
2,580

 
—

 
8,221

Gross profit
83

 
288

 
36

 
407

 
271

 
944

 
137

 
1,352

Selling and administrative expenses
31

 
287

 
73

 
391

 
97

 
947

 
145

 
1,189

Goodwill impairment charge
—

 
15

 
—

 
15

 
—

 
15

 
—

 
15

Operating earnings (loss)
$
52

 
$
(14
)
 
$
(37
)
 
$
1

 
$
174

 
$
(18
)
 
$
(8
)
 
$
148

Interest expense, net
 
 
 
 
 
 
40

 
 
 
 
 
 
 
141

Equity in earnings of unconsolidated affiliates
 
 
 
 
 
 
(1
)
 
 
 
 
 
 
 
(3
)
Earnings (loss) from continuing operations before income taxes
 
 
 
 
 
 
$
(38
)
 
 
 
 
 
 
 
$
10


NOTE 13—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Guarantees and Contingent Liabilities
Supervalu has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of December 2, 2017. 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 fourteen years, with a weighted average remaining term of approximately eight years. For each guarantee issued, if the Wholesale customer or other third party defaults on a payment, Supervalu would be required to make payments under its guarantee. Generally, the guarantees are se