NOTE 4—ACQUISITIONS

SUPERVALU INC.

On July 25, 2018, the Company entered into an agreement and plan of merger (the “Merger Agreement”) to acquire all of the outstanding equity securities of Supervalu, which was then the largest publicly traded conventional grocery distributor in the United States. The acquisition of Supervalu diversifies the Company’s customer base, further enables cross-selling opportunities, expands market reach and scale, enhances technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth. The merger was completed on October 22, 2018 (the “Closing Date”). At the effective time of the acquisition, each share of Supervalu common stock, par value $0.01 per share, issued and outstanding, was canceled and converted into the right to receive a cash payment equal to $32.50 per share, without interest. Total consideration related to this acquisition was $2.3 billion, $1.3 billion of which was paid in cash to Supervalu shareholders and $1.0 billion of which was used to satisfy Supervalu’s outstanding debt obligations. Included in the liabilities assumed in the Supervalu acquisition were the Supervalu Senior Notes with a fair value of $546.6 million. These Senior Notes were redeemed in the second quarter of fiscal 2019 following the required 30-day notice period, resulting in their satisfaction and discharge.

The assets and liabilities of Supervalu were recorded in the Company’s consolidated financial statements on a preliminary basis at their estimated fair values as of the acquisition date. In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu. Refer to Note 19—Discontinued Operations for more information on discontinued operations.

The following table summarizes the consideration, preliminary fair value of assets acquired and liabilities assumed, and the resulting preliminary goodwill. As of August 3, 2019, the Company is continuing its assessment of fair values of assets acquired and liabilities assumed. There can be no assurance that such final assessments will not result in material changes from the preliminary purchase price allocations, and such changes may result in increases or decreases to the goodwill impairment charge recorded in fiscal 2019 due to changes in the opening balance sheet value of goodwill. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as the Company finalizes the valuations of certain tangible and intangible assets acquired, and liabilities assumed. As of August 3, 2019, the primary areas of the purchase price allocation that are not yet finalized relate to current and deferred income taxes and certain discontinued operations real and personal property. Any potential fair value changes to these areas, would be assessed to determine whether identifiable intangible assets or the allocation of goodwill between reporting units should also be updated.



(in thousands)	Preliminary Acquisition Date Fair Values as of August 3, 2019
Consideration:
Outstanding shares	$	1,258,450
Outstanding debt, excluding acquired senior notes	1,046,170
Equity-based awards	18,411
Total consideration	$	2,323,031

Preliminary fair value of assets acquired and liabilities assumed:
Cash and cash equivalents	$	25,102
Accounts receivable	552,381
Inventories	1,159,642
Prepaid expenses and other current assets	108,830
Current assets of discontinued operations	196,848
Property, plant and equipment	1,210,416
Goodwill	374,757
Intangible assets	918,103
Other assets	75,965
Long-term assets of discontinued operations	429,304
Accounts payable	(972,888		)
Current portion of long-term debt and capital lease obligations	(579,565		)
Other current liabilities	(331,693		)
Current liabilities of discontinued operations	(148,763		)
Long-term debt	(34,355		)
Long-term capital lease obligations	(103,289		)
Pension and other postretirement benefit obligations	(234,324		)
Deferred income taxes	(20,131		)
Other long-term liabilities	(303,544		)
Long-term liabilities of discontinued operations	(1,398		)
Noncontrolling interests	1,633
Total consideration	2,323,031
Less: Cash and cash equivalents⁽¹⁾	(30,596		)
Total consideration, net of cash and cash equivalents acquired	$	2,292,435


(1)	Includes cash and cash equivalents acquired attributable to continuing operations and discontinued operations.

Preliminary goodwill represents the future economic benefits arising largely from the synergies expected from combining the operations of the Company and Supervalu that could not be individually identified and separately recognized. The Company is currently evaluating the tax deductibility of the provisional goodwill amount, however it currently expects a substantial portion of its goodwill to be deductible for income tax purposes. Goodwill from the acquisition was attributed to the Company’s Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit. No goodwill was attributed to the Retail reporting unit within discontinued operations. Refer to Note 7—Goodwill and Intangible Assets for additional information regarding the assignment of goodwill to the Company’s reporting units.

During fiscal 2019, the Company updated its preliminary fair value estimates of its net assets primarily due to a review of the cash flows used to measure fair value of intangible assets, estimates of current and deferred income taxes, estimates of expected fair value, less costs to sell, of its retail disposal groups based on indications of value, and estimates of carrying values of other assets and liabilities.

The following table summarizes the identifiable intangible assets and liabilities recorded based on preliminary valuations. The identifiable intangible assets are expected to be amortized on a straight-line basis over the estimated useful lives indicated. The preliminary fair value of identifiable intangible assets acquired was determined using income approaches. Significant assumptions utilized in the income approach were based on Company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance.



		Preliminary Acquisition Date Fair Values as of August 3, 2019
(in thousands)	Estimated Useful Life	Continuing Operations			Discontinued Operations
Customer relationship assets	10-17 years	$	810,000		$	—
Favorable operating leases	1-19 years	21,629			—
Leases in place	1-8 years	10,474			—
Tradenames	2-9 years	66,000			17,000
Pharmacy prescription files	5-7 years	—			45,900
Non-compete agreement	2 years	10,000			—
Unfavorable operating leases	1-12 years	(21,754		)	—
Total		$	896,349		$	62,900

The Company incurred acquisition-related costs in conjunction with the Supervalu acquisition, which are quantified in Note 5—Restructuring, Acquisition and Integration Related Expenses.

The accompanying Consolidated Statements of Operations include the results of operations of Supervalu since the October 22, 2018 acquisition date through August 3, 2019, which consisted of net sales from continuing operations of $10.47 billion. Supervalu’s net sales from discontinued operations for this time period are reported in Note 19—Discontinued Operations.

The following table presents unaudited supplemental pro forma consolidated Net sales and Net income (loss) from continuing operations based on the Company’s historical reporting periods as if the acquisition of Supervalu had occurred as of July 30, 2017:



(in thousands, except per share data)	August 3, 2019⁽¹⁾ (53 weeks)			July 28, 2018⁽²⁾ (52 weeks)
Net sales	$	24,503,882		$	24,184,056
Net (loss) income from continuing operations	$	(287,001	)	$	13,201
Basic net (loss) income from continuing operations per share	$	(5.60	)	$	0.26
Diluted net (loss) income from continuing operations per share	$	(5.60	)	$	0.26


(1)	Includes 12 weeks of pro forma Supervalu results for the period ended September 8, 2018.


(2)	Includes 52 weeks of pro forma Supervalu results for the period ended July 28, 2018, including 19 weeks of pro forma Associated Grocers of Florida, Inc. results, which was acquired by Supervalu on December 8, 2017.

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 periods being presented, nor are they indicative of future results of operations.

Gourmet Guru, Inc.

On August 10, 2016, the Company acquired all of the outstanding equity securities of Gourmet Guru, Inc. (“Gourmet Guru”). Gourmet Guru is a distributor and merchandiser of fresh and organic food focusing on new and emerging brands. Total cash consideration related to this acquisition was approximately $10.0 million, subject to certain customary post-closing adjustments. The fair value of identifiable intangible assets acquired was determined by using an income approach. The identifiable intangible asset recorded based on a provisional valuation consisted of customer lists of $1.0 million, which are being amortized on a straight-line basis over an estimated useful life of approximately 2 years. During the first quarter of fiscal 2018, in finalizing the purchase accounting related to the Gourmet Guru acquisition, the Company recorded an increase to goodwill of approximately $0.2 million with a decrease to prepaid expenses. The goodwill of $10.3 million represents the future economic benefits expected to arise that could not be individually identified and separately recognized.

Cash paid for Gourmet Guru was financed through borrowings under the Company’s Former ABL Credit Facility. The results of the acquired business’s operations have been included in the Consolidated Financial Statements since the applicable date of acquisition. Operations for this acquisition have been combined with the Company’s existing wholesale distribution business and therefore results are not separable from the rest of the wholesale distribution business. The Company has not furnished pro forma financial information relating to this acquisition as such information is not material to the Company’s financial results.