DISCONTINUED OPERATIONS

3 Months Ended

Nov. 02, 2019

Discontinued Operations and Disposal Groups [Abstract]

NOTE 17—DISCONTINUED OPERATIONS

In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu (“Retail”). The results of operations, financial position and cash flows of Cub Foods, Hornbacher’s, Shoppers and Shop ‘n Save St. Louis and Shop ‘n Save East retail operations have been presented as discontinued operations and the related assets and liabilities have been classified as held-for-sale.

Subsequent to the end of the first quarter of fiscal 2020, the Company announced that it had entered into agreements to sell 13 Shopper’s stores, and decided to close 4 locations. The Company expects to incur approximately $32.0 million to $42.0 million in pre-tax aggregate costs and charges related to these transactions, consisting of $13.0 million to $16.0 million of estimated severance and employee-related costs, $11.0 million to $14.0 million of estimated operating losses during the period of wind-down, primarily related to inventory, $2.0 million to $3.0 million of estimated transaction costs, and $6.0 million to $9.0 million of estimated non-cash asset impairment charges, primarily associated with real estate assets and leasehold improvements. The Company continues to hold the remaining Shoppers stores for sale. In the second quarter, the Company will assess the remaining composition of the Shoppers disposal group and review the recoverability of the remaining assets, as the Company continues to hold these locations for sale.

In fiscal 2019, the Company completed the sale of seven of its eight Hornbacher's locations, as well as Hornbacher’s newest store in West Fargo, North Dakota, to Coborn's Inc. (“Coborn’s”). The Company did not incur a gain or loss on the sale of this disposal group. The Hornbacher’s store in Grand Forks, North Dakota was not included in the sale to Coborn’s and has closed pursuant to the terms of the definitive agreement. As part of the sale, Coborn's entered into a long-term agreement for the Company to serve as the primary supplier of the Hornbacher’s locations and expand its existing supply arrangements for other Coborn’s locations.

In the fourth quarter of fiscal 2019, the Company completed the sale of the pharmacy prescription files and inventory of the Shoppers disposal group. As of November 2, 2019, only the Cub Foods and Shoppers disposal groups continue to be classified as operations held for sale as discontinued operations.

Operating results of discontinued operations are summarized below:



	13-Week Period Ended
(In thousands)	November 2, 2019			October 27, 2018⁽¹⁾
Net sales	$	610,821		$	46,598
Cost of sales	441,071			34,534
Gross profit	169,750			12,064
Operating expenses	136,435			9,494
Restructuring, acquisition and integration related expenses	1,362			—
Operating income	31,953			2,570
Other income, net	(1,091		)	(249		)
Income from discontinued operations before income taxes	33,044			2,819
Income tax provision	8,090			749
Income from discontinued operations, net of tax	$	24,954		$	2,070


(1)	These results reflect retail operations from the Supervalu acquisition date of October 22, 2018 to October 27, 2018.

The Company recorded $244.6 million and $21.8 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in the 13-week periods ended November 2, 2019 and October 27, 2018, respectively, which the Company expects will continue subsequent to the sale of certain retail banners. These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business. No sales were recorded within continuing operations for retail banners that the Company expects to dispose of without a supply agreement, which were eliminated upon consolidation within continuing operations and amounted to $113.0 million and $9.8 million in the 13-week periods ended November 2, 2019 and October 27, 2018, respectively.

The carrying amounts (in thousands) of major classes of assets and liabilities that were classified as held-for-sale on the Condensed Consolidated Balance Sheets follows in the table below.



(In thousands)	November 2, 2019		August 3, 2019
Current assets
Cash and cash equivalents	$	2,845	$	2,917
Receivables, net	4,532		1,471
Inventories	139,409		129,142
Other current assets	9,097		10,199
Total current assets of discontinued operations	155,883		143,729
Long-term assets
Property and equipment	292,154		301,395
Intangible assets	49,687		48,788
Other assets	2,051		1,882
Total long-term assets of discontinued operations	343,892		352,065
Total assets of discontinued operations	$	499,775	$	495,794

Current liabilities
Accounts payable	$	54,781	$	61,634
Accrued compensation and benefits	34,574		45,887
Other current liabilities	11,523		14,744
Total current liabilities of discontinued operations	100,878		122,265
Long-term liabilities
Other long-term liabilities	1,403		1,923
Total liabilities of discontinued operations	102,281		124,188
Net assets of discontinued operations	$	397,494	$	371,606

As of November 2, 2019, the fair value of disposal groups were estimated based on each group’s expected consideration less costs to sell. Stand-alone fair values are estimated based on fair value reviews and indications of value for long-lived assets exclusive of transferring multiemployer pension plan obligations. Based on the impairment reviews in the first quarter of fiscal 2020, no indications of impairment existed.

If transactions were to occur at a level lower than the disposal groups, the Company would disaggregate the disposal group and perform a recoverability review of the long-lived assets based on the asset group at that time. In addition, the sale of the Company’s retail disposal groups may result in charges that may be materially different than the Company’s prior estimates. Estimates most sensitive to changes that could result in material charges include expected consideration, including the extent to which the Company is able transfer multiemployer pension plan obligations, and the potential sale of the disposal groups at a lower level.